Daily Market Forecast by Capital Trust Markets

[CapitalTrustMarkets]

Nasdaq Tests Triangle Support Before US Inflation Report

The Nasdaq Composite Index extended downside movement yesterday after facing rejection near a key resistance area. The stock market index is however entered into the bullish territory after breaking the daily triangle formation. The sentiment remains bullish due to higher low and higher high in the recent wave.

Technical Analysis

As of this writing, the stock market index is being traded near 3600. A support can be seen around 3580 that is the trendline resistance turned support. A break and daily closing below the trendline support will again push the market into negative territory, opening doors for 3536, the 38.2% fib level and lower trendline support as demonstrated in the following chart.

On the upside, the market is likely to face a hurdle near 1.3625 that is the intraday high of Tuesday. A break above 1.3625 might spur renewed buying interesting, validating a rally towards the 3660 resistance area.

US Consumer Price Index

The US Bureau of Labor Statistics will release the Consumer Price Index (CPI) report today. According to the average forecast of various economists, the CPI increased by 0.3% last month as compared to 0.2% increase in the month before, better than expected actual outcome will be considered bullish for the US stock markets and vice versa.

Trade Ideas

Buying the stock market index around the trendline support appears to be a good strategy. The target should be near the swing high of the previous wave as descried above. The trade should however be stopped out on a daily closing below the trendline

Another Hot Trade Setup Of The Day: GBP/USD: LONG TERM SLOPE CHANNEL IN JEOPARDY

 

[CapitalTrustMarkets]

Yellen To Address Employment In Upcoming Speech

Fundamental Bias: Bullish USD

Key Takeaways:

• Yellen set to speak on Thursday afternoon
• She will almost certainly address US employment, and could hint at an interest rate hike timeline
• A hawkish tone could break strong support, and offer up an initial downside target at 1.3593

It's national small business week in the US, and as one of the headline events of the week, Fed Chair Janet Yellen is set to speak at the US Chamber of Commerce and US Small Business Administration.

She takes the stage following a day of key releases out of the nation, and could compound an already volatile dollar as we head into the latter stages of the week. So what will traders be looking for from the speech, and what impact, if any, might its tone have on the value of the USD? Let's take a look.

It all comes down to interest rates. A March survey revealed that 13 members of the policy setting Federal Open Market Committee expect interest rates to move off their current all-time lows in 2015. The number rose from 12 at the end of last year, suggesting that data released during the first quarter of 2014 was strong enough not only to reinforce the opinions of the hawks, but also to sway those of the doves. It is believed that Janet Yellen supports a hike that fits those timeframes, but she has publicly stated that any such aggression would rely on robust fundamentals – primarily employment.

This is why this evening's speech could be so impactful, because it would be almost impossible to avoid directly referencing employment at a commerce and small business administration event. So, what has the data said about the state of the US economy since the aforementioned survey releases? Well, jobless claims data came in better than expected last week, with the continuing and initial releases declining on the previous figures. In addition, the highly anticipated nonfarm release came in 10K above the consensus forecast.

With this in mind, any comments relating to the employment situation in the nation, and its inferred effect on interest rates, will likely lean towards a hawkish tone. So how might this affect the US dollar heading into Thursday evening? Take a look at the chart below.

First, it's important to point out that Thursday see's the release of a number of data, two of which are updates to the aforementioned jobless claims figures. A continued improvement in these releases will compound the potential for a hawkish tone this evening.

Currently trading just above key support at 1.3661, the EURUSD looks set for further losses as the day matures and we head into the end of the week. Look for Yellen's hawkishness to catalyze a break below aforementioned support, a close below which would offer up an initial downside target of 1.3593. Bear in mind that a corrective round may initiate a retest of the broken support, which could offer a nice entry for those looking for extra confirmation.

************
Prepared by Samuel J Rae - Chief Currency Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

The gold — dollar showdown

Fundamental Bias: Neutral

Key Takeaways:

• Global economy is strong, but gold is not weakening accordingly
• This could reflect risk off sentiment as an overspill of the situation in Ukraine
• Convergence in the USD and gold offers up $1,278 floor, and suggests there may be strength to come in the yellow metal

A couple of months ago, risk off sentiment was rife across the global financial markets.

Investors waited anxiously for any signal of an escalation of the situation in Russia and Ukraine, with expectations that such an escalation could come at any time. Fast forward to May, and sentiment looks to have shifted considerably. Strong global data has hinted at improving economic conditions, and investors are looking past zero yield assets such as the yellow metal. The tensions are ongoing in Ukraine however, and regardless of whether or not the markets are paying attention, there remains the potential for rapid escalation, and in turn, a return to the sentiment that dominated the February/March precious metals.

So what can we expect going forward? Will the strengthening global economy weigh on the value of gold, or could an escalation in Crimea draw safe haven demand? To try and get to the bottom of this question, let's look at the US Dollar versus gold.

It has to be said that at present, the US dollar looks to be leading the charge. Employment data out of the nation has surpassed expectations across the board this month, strengthening the market's expectations of a rate hike perhaps as soon as the end of this year, but more likely during early 2015. With key GDP, real estate and durable goods data set to headline throughout the latter half of the month, fundamental releases could steal the spotlight from any Ukrainian developments, especially if the situation remains dampened, as has been the case over the past few weeks.

Having said this, the last couple of days has seen the USD strengthen somewhat across the majority of its major and exotic counterparts, without any considerable decline in the value of gold. This is often a sign of strength, with such action suggesting that the yellow metal has found a medium term floor. If this is the case, the implications of any adverse event may be more magnified than then the impact of a strong dollar – meaning any upside swing in the value of gold will likely be more pronounced than a downside swing.

So what are the levels to watch? Take a look at the XAUUSD chart below.

Highlighted is the likely location of the aforementioned floor – support at 1,278.41. Even with considerable dollar strength, don’t expect the XAUUSD to fall below this level any time soon. A test would likely catalyze a rally towards in term resistance at 1,310.07, and any escalation in Ukraine would likely break this resistance, offering up an initial upside target of April resistance at 1,327.83.

Let the showdown commence.

*******
Prepared by Samuel J Rae - Chief Currency Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

The Gold — Dollar Showdown

Fundamental Bias: Neutral

Key Takeaways:

• Global economy is strong, but gold is not weakening accordingly
• This could reflect risk off sentiment as an overspill of the situation in Ukraine
• Convergence in the USD and gold offers up $1,278 floor, and suggests there may be strength to come in the yellow metal

A couple of months ago, risk off sentiment was rife across the global financial markets.

Investors waited anxiously for any signal of an escalation of the situation in Russia and Ukraine, with expectations that such an escalation could come at any time. Fast forward to May, and sentiment looks to have shifted considerably. Strong global data has hinted at improving economic conditions, and investors are looking past zero yield assets such as the yellow metal. The tensions are ongoing in Ukraine however, and regardless of whether or not the markets are paying attention, there remains the potential for rapid escalation, and in turn, a return to the sentiment that dominated the February/March precious metals.

So what can we expect going forward? Will the strengthening global economy weigh on the value of gold, or could an escalation in Crimea draw safe haven demand? To try and get to the bottom of this question, let's look at the US Dollar versus gold.

It has to be said that at present, the US dollar looks to be leading the charge. Employment data out of the nation has surpassed expectations across the board this month, strengthening the market's expectations of a rate hike perhaps as soon as the end of this year, but more likely during early 2015. With key GDP, real estate and durable goods data set to headline throughout the latter half of the month, fundamental releases could steal the spotlight from any Ukrainian developments, especially if the situation remains dampened, as has been the case over the past few weeks.

Having said this, the last couple of days has seen the USD strengthen somewhat across the majority of its major and exotic counterparts, without any considerable decline in the value of gold. This is often a sign of strength, with such action suggesting that the yellow metal has found a medium term floor. If this is the case, the implications of any adverse event may be more magnified than then the impact of a strong dollar – meaning any upside swing in the value of gold will likely be more pronounced than a downside swing.

So what are the levels to watch? Take a look at the XAUUSD chart below.

Highlighted is the likely location of the aforementioned floor – support at 1,278.41. Even with considerable dollar strength, don’t expect the XAUUSD to fall below this level any time soon. A test would likely catalyze a rally towards in term resistance at 1,310.07, and any escalation in Ukraine would likely break this resistance, offering up an initial upside target of April resistance at 1,327.83.

Let the showdown commence.

*******
Prepared by Samuel J Rae - Chief Currency Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

Can Employment Filter Through To Sentiment?

Fundamental Sentiment: Bullish

Key Takeaways:
• UoM Consumer Sentiment set for release on Friday morning
• Strong employment data could filter through to confidence
• An upside surprise would strengthen USDCAD long term support, offering an initial upside target of recent swing close at 102.628

Mid US morning, the University of Michigan will report its latest Consumer Sentiment report.

With a raft of positive data reported out of the US on Thursday failing to have the expected impact in the major US pairs, the markets will be watching the upcoming release closely to see if the response to today's release will reflect yesterday's positive outlook. So what does consensus expect – and how might a release that differs from this expectation affect the value of the US dollar? Here's what you need to know.

A Quick Recap

First, let's quickly recap what happened yesterday. Employment data has been top of the traders' focus list as late, with any hope of an early 2015 interest rate hike resting squarely on a healthy job market in the US. True to form, the data did not disappoint, with both continuing and initial jobless claims data reported lower than expected. Furthermore, inflation data compounded these figures, with the core CPI data hitting 1.8%, a modest gain on the previous release of 1.7%. Finally, the Philly Fed Man Index hit 45.4, beating a consensus estimate at 14.0.

So, with a buoyant jobs market, strengthening inflation and suggested expansion in the manufacturing space, all looks well for an in term rate hike. Well, nearly. What needs to happen now is for the employment boost to filter through to consumption, and this is where today's release comes in. Consumer confidence fuels household expenditure, and boosts consumption. Since traders and investors generally keep a closer eye on the economy than the general public, there may be a lag between employment strengthening and confidence rising, but consensus still expects a reading of 84.5, a small gain on the previous release of 84.1.

Technicals

So what are the levels to watch? Take a look at the USDCAD chart below.

As the chart shows, the USDCAD has spent the majority of the year bouncing off key support at the highlighted 101.325. The latter half of this week brought the pair to trade just shy of this level once again; with the question now being will support hold strong? As mentioned, consensus estimates the release at 84.5, so expect an on target figure, or a better than expected figure, to strengthen support and catalyze a reversal. Look to recent swing highs at 102.628 for an initial upside target, and a close above this level would bring 103.310 into play.

 

[CapitalTrustMarkets]

Let's Play Spot The Top In The Cable

Fundamental Bias: Long term bearish Sterling

Key Takeaways:

• CPI data impressed in the UK
• Housing market could pose a threat to the future of the sterling
• Low wage growth, higher than expected inflation and rising rates would likely trigger defaults in the face of increasing house price growth

The National Statistics organization in the UK reported the latest round of inflation data early on Tuesday morning, with the headline release coming in better than expected.

The sterling strengthened against its US counterpart on the release, and looks set to complete its fourth straight day of gains and resume the recently corrected longer-term uptrend in the cable. There is however, a dark cloud hanging over the UK at the moment, one that could overshadow the spate of recent growth data, inflation included, and that is the potential house price bubble.

Rising house prices are traditionally seen as a positive for an economy, a sign of economic prosperity and growth. However, current economic conditions threaten to change this view. In the UK, hose prices rose more than 8% last month on a year over year basis, primarily due to current government stimulus actions such as the UK's HelpToBuy program and an increase in foreign investment flow towards the UK housing market.

What makes this different to previous situations in which house prices have risen dramatically however, is interest rates are effectively zero. As soon as rates start to rise, which is inevitable so long as growth data continues to impress, Carney will raise the base rate. Since wages have seen no considerable increase over the past few years, it is reasonable to assume that the proportion of individuals buying at their monthly spend limit is higher than normal, and in turn, as soon as interest rates increase, this comparatively larger proportion will find it difficult to meet mortgage repayments. When looked at from this angle, the effect that rising goods and service prices (as illustrated by today's CPI data) could have on an individual's ability to meet payments does not look so positive!

In short, pretty soon there could be a complete reversal in the market's perception of the headline releases. Once this concept is picked up on, inflation and house price growth will no longer be a good thing, and will likely be seen to be magnifying the potential impact of a housing bubble.

The cable chart above shows the long-term strength of the sterling versus the dollar. For me, the only real question left to ask is how soon the top will come. It is impossible to say, of course – it depends solely on how quickly the general market identifies this potential crisis. Simply put, don’t hold your breath, but keep a sharp eye on the charts for reversal patterns – we will be.

************
Prepared by Samuel J Rae - Chief Currency Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

Export Growth Could Unlock Yen Strength

Fundamental Bias: Near-term Bullish JPY

Key Takeaways:

• Japanese trade balance data set for release on Tuesday evening
• Markets will be looking for export growth to compound recent GDP and production figures
• Strong growth could complete a head and shoulders, offering up an initial target of 100.753.

After a host of better than expected releases hinted that their finally might be some green shoots of efficacy from Shinzo Abe's policies, the markets will be looking to the trade balance figure, and its constituent exports and imports figures, to compound the positive outlook and strengthen the Japanese yen.

Is this likely? Here's what you need to know.

First, let's do a quick recap of the data that sets today's release up to boost the currency versus its major counterparts. During the middle of last week, the Japanese cabinet office reported YoY GDP at 5.9% and QoQ GDP at 1.5%, with both figures exceeding consensus. At the end of last week industrial production data followed suit, showing growth of 0.7% versus a consensus estimate of 0.3%. Why is this important? Primarily, because it is demonstrates that the much-touted three arrows policy currently underway in Japan may finally be starting to take hold. There are now three releases, one this week and two next week, that policymakers in Japan will be looking to as confirmation of this efficacy – exports, retail sales and inflation.

Of the three inflation is perhaps the most highly anticipated, but this takes nothing away from today's export data. Why is export data important? Primarily because one the Shinzo Abe's key goals was to reduce the value of the yen so as to boost international demand for its goods and services. The yen deflation has occurred, however exports have remained relatively stagnant. So, markets will be looking for some level of growth to confirm the current bullish bias.

So what are the levels to keep an eye on? Take a look at the USDJPY chart below.

As the chart shows, having topped around 105.440 towards the end of last year, the USDJPY corrected towards 100.75 support throughout January. Support catalyzed a resumption of the uptrend, but an extended head and shoulders looks set to complete on a better than expected trade balance release. The ley level to watch is the pattern neckline/ in term support at 101.325. Consensus forecasts YoY export growth at 4.8% versus a previous 1.8%, and a hit may be enough to catalyze a break below neckline support. If not, an upside surprise will definitely do the job, and a close below will validate an initial downside target at 100.753. Traditional charting would put a pattern target somewhere around 98.49, but don’t hold your breath, as it is unlikely Abe's policy will allow too much depreciation, certainly as far as the near to medium term is concerned.

************
Prepared by Samuel J Rae - Chief Currency Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

Can Chinese Data Break Long Term NZDUSD Support?

Fundamental Bias: Bearish NZDUSD

Key Takeaways:

• HSBC Manufacturing PMI set for release on Wednesday evening.
• Traders are looking to the release to gauge the likely structure of the property market cool down
• A miss could break long term support in the NZDUSD, with an initial downside target at 0.8470.

Late on Wednesday evening, HSBC will report its latest Manufacturing PMI data.

The report is the latest in a string of Chinese headliners, with the majority of its predecessors missing expectations and fueling the already widespread opinion that China could be heading for trouble. A miss in the data would sent a ripple of pressure through the crosses of those currencies linked to the Chinese economy, and presents traders with a number of short opportunities. Here's one in the NZDUSD.

First, let's run through how we got to where we are today. China has enjoyed a close to decade long property boom, which has seen house prices almost double over the past four years. Market data now suggests the property boom is coming to an end, with manufacturing and MoM inflation contracting and fixed asset investment, industrial production and retail sales all missing expectations this month alone. The general consensus is that, when the property market declines, Chinese import demand will waver and those countries that rely on China for a large portion of their export revenues.

So how might things play out? There are two sides of the coin, one in which the bubble bursts and the other in which the property market cools over a prolonged period. The former would likely spell disaster, as with the property boom has come a large increase in both household and national level debt fueled expenditure. A sharp decline in prices could cause default at every tier of the Chinese economic expenditure, and instantly impact consumer spending, production and the aforementioned import demand. The latter, would likely still impact demand, but would give nations like New Zealand and Australia a chance to offset any potential loss in export revenues.

This is why the data is so important, because it allows investors to judge which of the two outcomes is more likely. Consensus forecasts another contraction, with a forecast unchanged on the previous release of 48.1.

Take a look at the NZDUSD chart below for the setup.

Action in the pair has been somewhat unpredictable over the past couple of months, with continuous fresh swing highs finding strong resistance and correcting to support at 0.8530 on three separate occasions. This suggests there is a certain level of upside momentum fueling the NZD, but enough sellers to break support on sharp data. With this in mind, an on target PMI release will likely test support at 0.8530, but not break it. A miss on the other hand, will likely catalyze a break through in term support, with a close below this level offering up an initial downside target at 0.8470.

********
Written by Samuel Rae – Currency Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

Eurozone Manufacturing Data Could Fuel QE Speculation

Fundamental Bias: Bearish EURO

Key Takeaways:

• Eurozone manufacturing PMI data set for release on Thursday morning.
• A miss would strengthen the argument for a June QE announcement
• Look for a daily close below 1.3661 to validate an initial downside target of 1.3593.

Early Thursday morning, a sweep of manufacturing PMI data is set for release out of Europe.

The two headline releases, the German PMI and its all-encompassing Eurozone equivalent, will be the most watched of the bill, as traders and investors try to decipher the state of the Eurozone economy ahead of the highly anticipated June ECB interest rate announcement. Will the upcoming data point towards a potential QE initiation, or will expansion be enough to persuade Draghi that deflation can be avoided organically? Here's what you need to know.

First, let's take a quick look at what’s going on in Europe at present. It's all about inflation; well, more specifically, deflation. The latest CPI release came in on target at 0.2% MoM and 0.7% YoY, but despite hitting target, it remains uninspiring, and far below the targeted 2%. Deflation would be disastrous for an economic region that has barely recovered from crisis in 2012, and if the ECB feels it necessary, it could implement a round of bond buying across the representative nations. The structure of the buying remains unclear, and is complicated by the disparity between the economic performances of Eurozone constituents, but its target would be to stimulate activity, output, and eventually, inflation.

With no CPI figures set for release between now and the interest rate decision, headliners such as tomorrows PMI will undoubtedly factor heavily into the decisions of the ECB committee members. So what's expected? Consensus forecasts the German and Eurozone releases at 54.5 and 53.2 respectively, representing a deceleration on the previous expansionary figures.

And what do the charts say about a potential setup?

The EURUSD declined sharply on Wednesday as Janet Yellen took the stage, and look set to log a daily close below key long term support at 1.3661. For a while now we have been watching this level as on that could possibly represent a completion of the three month double top, and today's action could be the catalyst behind a short entry with an initial downside target at 1.3593. Don’t be surprised if the pair corrects to retest broken support short term, but look for miss in tomorrow's PMI releases to strengthen it as in term resistance and validate the aforementioned 1.3593 target.

********
Written by Samuel Rae – Currency Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

Can Home Sales Data Fall In Line With Its Fellow Headliners?

Fundamental bias: Bearish EURUSD

Key Takeaways:

• Home sales data set for release Thursday morning
• A better than expected release will bring the real estate space into line with the other fundamental headliners, and strengthen an early 2015 rate hike bias.
• Look for such a release to break support at 1.3660 and bring 1.3590 into play as an initial downside target

As the US markets open on Thursday, the National Association of Realtors will report the latest round of home sales data.

The headline figure – Existing Home Sale MoM – will offer insight into the state of the somewhat fragile property market recovery. Can the data impress and keep things on track for an early 2015 rate hike? Let's take a look.

First, let's have a quick look at the current economic situation in the US. The current hot topic is whether or not the Fed will be willing to raise rates at the aforementioned beginning of 2015. Current tapering efforts are well under way, with the Fed announcing a bond-buying cut to $45B per month in April, and Janet Yellen has stated that she believed the US economy is growing, and that she believes this growth will likely accelerate heading into the latter half of 2014. The majority of the headline releases look to have supported this statement, with inflation, employment and consumption all beating expectations already this month. The real estate market seems to be falling behind the curve however, with existing home sales essentially flat over the past two months, and price rise relatively mute.

For this reason, the market will look for better than expected new home sales figures to bring the property market back in line with the rest of the major releases, and get the 2015 interest rate hike back on track. Consensus forecasts a gain of 4.68M, with a MoM percentage change of 2.2% growth.

So what do the charts say about a potential setup?

Take a look at the EURUSD chart above. The pair dipped sharply throughout Wednesday, but regained strength heading into the daily close to sit just shy of key long-term support. Action on Thursday has seen the EUR lose strength once again, and the pair now trades just shy of Wednesday's initial downside target of 1.3660. This is now the level to watch. Expect a strong release across the two figures to catalyze a break through support, with a daily close below this level bringing 1.3590 into play as a downside goal. If the data misses, look for a retest of broken support, but maintain a longer-term bearish bias heading into the end of the week.

 

[CapitalTrustMarkets]

A Range Break Is On The Cards In The USDSGD

Fundamental Bias: Neutral

Key Takeaways:

• MAS set to release latest inflation data on Friday morning
• A surprise could break the consolidation in the USDSGD
• Look for a miss to break in term resistance and offer up 1.2580 as an initial upside target

Early Friday morning, the Singapore Department of Statistics will report its latest inflation release.

The figure – CPI YoY – is forecast to bring inflation in the state to within the Monetary Authority of Singapore's (MAS) target range, and an on target release would balance out the recent string of headline misses, and likely shift sentiment to a positive outlook for the region. After a period of uncertainty driven consolidation in the USDSGD cross, the release may finally help the pair find some medium term direction. Here's what you need to know.

First, let's take a quick look at Singaporean monetary policy. Unlike the vast majority of central banks, the MAS uses the Singapore dollar exchange rate to manage its monetary policy. The policy is called the foreign exchange mechanism, and involves MAS intervention in the SGD market. The reasoning behind this sort of intervention is directly related to cross border trade, meaning the MAS will sell SGD in the open market to weaken the currency when it feels the economy is slowing, and vice versa, if the economy is seen to be growing unsustainably. This goes against the traditional speculative bias, as traders are always aware that a string of positive data could spark MAS intervention, and a mass institutional selloff in the SGD.

Luckily, intervention looks unlikely at present, so any setup can be traded without fear of contrarian institutional action. So let's look at the current economic situation in Singapore. Over the last week, both retail sales and GDP (YoY) have missed expectations, but GDP QoQ suggested some degree of acceleration coming out better than expected. Consensus forecasts the upcoming inflation release at 2.6% growth, so look for a hit or beat to strengthen the SGD, and conversely, a miss to weaken the currency.

So what are the levels to watch? Take a look at the USDSGD chart below.

The chart illustrates the uncertainty in the pair as late, with action consolidating within a range between 0.2494 support and 1.2539. These two levels are the levels to keep an eye on. Look for a release exceeding the forecast 2.6% to catalyze a break towards in term resistance, with a close below this level offering up yearly close lows at 1.2458 as an initial downside USDSGD target. Looking the other side of the release, look for a miss to break in term resistance at 1.2539, and a close above this level would bring the most recent swing high at 1.2580 into play.

 

[CapitalTrustMarkets]

Canadian Inflation Hit Could Validate Classic Pattern

Fundamental Bias: Neutral

Key Takeaways:

• Canadian inflation data set for release Friday morning
• Sector and regional disparity is skewing Canadian releases as of late
• A better than expected release could validate an eight week head and shoulders, with an initial downside target at 1.0704

As the markets open on Friday, Statistics Canada will report its latest round of inflation data.

The data will shed light on the state of the Canadian recovery, and as such, could have a significant impact on the value of the Canadian dollar versus its major counterparts. Here’s what you need to know.

The Canadian economy is going through a strange period at present. Over the past month, economic data has missed substantially in some areas, while beating expectations in others. The reason? A disparity between the growth rates of certain sectors and regions. For example, regions such as Alberta, where there are plenty of mining resources, have seen rises in unemployment, wages and, in turn, consumption. The majority of the rest of the country however, those reliant on agriculture and the services sector, have struggled as late. This disparity is skewing the fundamental releases somewhat, in the sense that some of the headliners are not representative of the majority of the country.

So what's expected as far as inflation is concerned? Consensus forecasts the core MoM at 0.2% and its YoY counterpart at 1.4%. The core releases will reduce the skewing effect of the disparate regions somewhat, so these are the ones to keep an eye on at release time. The forecasts suggest that inflation will remain well below Poloz's and the BoC's target of 2.0%, so an on target release or a downside miss will put pressure on the CAD. Conversely, a better than expected release would hint at the potential bringing forward of a rate hike, perhaps as early as 1st quarter 2015, and would support the CAD.

So what are the levels to keep an eye on? Take a look at the USDCAD chart below.

The chart shows the formation of a head and shoulders over the past eight weeks, and a better than expected release in today's inflation data could catalyze a break towards the neckline at 1.0829. Look for a YoY figure above 1.6% to break this in term support, and offer an initial downside target of 2013 resistance at 1.0704. Conversely, a miss would invalidate the pattern and test in term resistance at 1.0937. A close above this level would bring 1.1037 into play to the upside.

 

[CapitalTrustMarkets]

A Perfect Storm Presents Rare Upside Play in Palladium

Fundamental bias: Strong Bullish

Key Takeaways:

• Ukraine elections present upside play in Palladium
• Russian intervention could cause sanction tightening, which could restrict global Palladium supply
• South African strike adds supply pressure to the situation
• Target at 860.00 flat


The upcoming elections in Ukraine this weekend present traders with a rare short-term opportunity to snatch a quick profit out of the palladium market.

It is not uncommon for elections to have some sort of small-scale impact in the commodities and metals markets, but rarely do the elections take place at a time of such geopolitical unrest, and with such a direct link to supply. Here's what you need to know.

First, it is important to point out the link between Russia and palladium. In short, Russia is world's biggest producer of the industrial metal. Last year, Russian mines accounted for 44% of a global total of 197,000 Kgs, meaning any change in the nation's mining efforts (or ability to meet global demand) could restrict supply substantially. This, obviously, would drive up the price of Palladium.

So what's the event risk in the upcoming elections? Well, as those reading this are probably more than aware, Russia effectively wrestled control of Crimea from Ukraine earlier this year. Global sanctions have ensued, and the then Ukraine president removed via means of revolution, which drove the need to bring forward the 2015-scheduled election to this weekend. Now markets fear that Russia may attempt to disrupt the election. Potential disruption methods are unclear, but range from military to public intervention. If this happens, global policymakers may subject the nation to increased sanctions, one of which could be restrictions on its palladium exports.

Adding fuel to the fire is the ongoing mining strikes in South Africa, which is the world's second leading producer, accounting for 37% of global supply. So in short, the ongoing fear of a supply shortage in the industrial metals is coming to a break point ahead of the elections.

So what are the levels to watch? Take a look at the XPDUSD chart below.

The chart clearly shows the current Bull Run in the pair, with broken resistance at 826.76 catapulting palladium to near 2011 highs, and now serving as in term support. Expect this price to act as a floor as we head into the weekend, and look for an initial upside target of 860.00 flat – a 3% gain.

********
Prepared by Samuel J Rae - Chief Currency Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

Will Strikes Weigh On South African Growth?

Fundamental Bias: Bearish Rand

Key Takeaways:
• South African GDP set for release early Tuesday morning
• Strikes have dogged expectations, and consensus forecasts the first QoQ decline in four years
• Look for a miss to offer up channel resistance at 10.4762 as an upside USDZAR target.

Early on Tuesday morning, the head office of Statistics South Africa will report its latest QoQ GDP release.

For relatively compact and open economies such as that of South Africa, maintaining growth is hugely important. For this reason, any event, be it domestic or international, that might affect growth can put serious pressure on the value of the economy in question's currency. What's expected tomorrow, and how might it affect the Rand? Here's what you need to know.

The issue grabbing all the headlines in South Africa at the moment is the mining strike. The three largest platinum mines in South Africa, Anglo American Platinum Ltd. (AMS), Impala Platinum Holdings Ltd. (IMP) and Lonmin Plc, walked out more than four weeks ago over a union led pay dispute. The mines account for 80% of global platinum supply, and draw a huge amount import revenue to South Africa, and as a result their halting operations has weighed heavily on South Africa's prospects. Not only is the nation drawing less export revenues, but with a major portion of its workforce out not earning a wage, disposable income and, in turn consumption, is down.

To compound the turmoil, more than 5,000 further employees from the sugar industry are set to strike on Tuesday, again demanding a pay increase to the tune of just over 10%. So how has this translated through to expectations?

Consensus forecasts MoM contraction of 0.1%, suggesting those in the know recognize the huge detrimental effect the mining halt is likely to have had on medium term prospects. To put this in perspective, it will be the first time the South African economy will have contracted on a QoQ basis since 2010, which came as the developed world was clambering its way out the recession.

So what are the levels to keep an eye on?

Take a look at the USDZAR chart above. The Rand has strengthened throughout the majority of the year, primarily as a result of risk on sentiment and the expectation that the resulting foreign investment capital will draw a rate hike in the nation. Currently trading mid-range in a 5-month channel, in term support sits at 10.2119 and resistance at 10.3724. Bear in mind that the pair can be volatile, and these two levels are very much interim. Look for a miss in tomorrow's release to break resistance, with an initial upside target of the channel's upper trendline at 10.4762. Conversely, look for a better than expected figure to resume the overarching trend, with a daily close below in term support bringing channel support into play at around 10.0640 as a longer term downside target.

 

[CapitalTrustMarkets]

This Release Offers Insight Into Japanese Headline Inflation

Fundamental bias: Neutral

Key Takeaways:
• Japanese CPSI set for release on Monday evening.
• The release can serve as a leading indicator of the upcoming headline inflation data.
• A miss could inject some volatility into the USDJPY, with in term support at 101.32 and resistance at 102.62 the levels to keep an eye on.

Markets in both the US and the UK are closed on what looks set to be a quiet day as far as market moving releases are concerned – meaning we must look east for Monday volatility.

Shortly after the would-be close of the US session, the Bank of Japan will release its latest Corporate Services Price Index (CSPI) data - a release that typically would not have that much of an impact on the markets. In light of current economic focus in Japan however, market reaction may well digress for the norm on this occasion. Here's what you need to know.

The CPSI is not a release we talk about often, so it's worth quickly outlining what it is and what it means for Japan. Simply put, it's an inflation measuring tool, but with the sole focus on the change in cost of corporate services. So, why it is important? The large businesses of any economy generally react quicker to changing economic conditions than do the individuals and the smaller retailers. For this reason, the CSPI can act as leading indicator of the all-encompassing CPI data. In short, if the larger private entities put up the cost of their services, it suggests an optimistic outlook. Conversely, a reduction of freezing of corporate service prices suggests the entities in question don’t feel that others would be willing to pay higher prices for their services in the near future, in turn suggesting a pessimistic outlook.

With Shinzo Abe's three-arrows policy well under way and attracting intense scrutiny from economists, markets and policymakers across Asia and beyond, Thursday's CPI release wave could be key in deciding the medium turn direction of the Japanese yen versus its major counterparts. For those who are looking to get a rare head start on the markets, today's release offers early insight into Thursday's results.

So what are the levels to watch?

Take a look at the USDJPY chart above. When we wrote about this pair last week, it looked as though a fundamental catalyst might break the neckline support of a classic head and shoulders. Rather however, support held firm and a distinctly bullish pin from support initiated something of a short term correction in the USDJPY. This action puts in term resistance at 102.62 and its counterpart support at 101.32 as the levels to keep an eye on heading into the CSPI data and, looking beyond, Thursday's inflation releases. Consensus forecasts today's release at 3.3% growth, so look for a , a better than expected release to once again retest in term support. A close below this level would bring 100.75 into play as a secondary downside target. Conversely, a miss to boost the USD, with in term resistance an initial upside target at 102.628.

 

[CapitalTrustMarkets]

Will Durable Goods Derail A Potential Hike?

Fundamental bias: Neutral

Key Takeaways:
• US core durable goods set for release on Tuesday morning
• A miss could derail the potential for an early 2015 rate hike
• Draghi is set to speak in Portugal shortly after the release, so the USDJPY may be a better pair to watch for determinable volatility
• In term support at 101.300 and resistance at 102.628 are the levels to watch today

After a late start to the week, the markets in the US and the UK are back to normal on Tuesday, and with the normality comes a spate of headline releases.

First on the bill is the latest round of durable goods order data out of the US, with the core component of the data sure to be closely watched for any indication that Yellen's 2015 rate hike may be derailed. Here's what you need to know.

First, a look at what's behind the release. Durable goods are classed as goods that last more than three years – things like televisions, white goods etc – and are generally only on the shopping list when consumers are optimistic about their financial security and the future of the economy. For this reason, the durable goods data can be a leading indicator of consumption, employment and production. If these three aforementioned aspects of the economy are on the rise – as a high durable goods count would suggest – then inflation is never too far around the corner.

Yellen has stated that key economic areas such as the unemployment level in the US will be the driving factors behind any rate hike (in the sense that rates won't rise until these key aspects suggest the economy is sound) but when it all comes down to it, it's all about inflation. Even with low unemployment and strong output, Yellen will hold off from any potential hike if inflation wanes. SO, traders will be looking to today's release not only to suggest that consumption and optimism is on the up, but that inflation could be just around the corner to compound any hawkish monetary policy reasoning.

So what are the levels to watch? Take a look at the USDJPY chart below.

I have picked the yen cross as opposed to the USD primarily because the durable goods release often has a pretty straightforward impact on the USD, and while this makes it far from easy to trade, it makes predicting its implied directional bias simpler to deduct. However, shortly after the US release, ECB president Draghi is set to take the stage in Portugal. The anticipation of this event could dampen the durable goods release, so the USDJPY presents a more straightforward trade opportunity than its EURUSD counterpart. The pair once again found support last week at its long term floor of 101.300, and now trades mid range between in term support at the aforementioned floor level and in term resistance of the recent swing high at 102.628. Consensus forecasts the core durable goods release – the one to watch – at 0.3% growth MoM, so look for anything above 0.3% to test resistance. A particularly strong release could catalyze a break, and a close above 102.628 would offer up an initial upside target of 103.310. Looking short, expect a miss to weaken the pair, with an initial downside target at in term support. A break below would bring January lows into play as a potential medium term target.

 

[CapitalTrustMarkets]

Dark Times Lie Ahead For Germany And The Eurozone

Fundamental Bias: Bearish EUR

Key Takeaways:
• German unemployment data set for release early Wednesday morning
• Consensus forecasts no change on the previous release of 6.7%
• Elections and the resulting Euroscepticism could disrupt the Eurozone ahead of the potential policy easing in June, suggesting a rocky road for the Euro ahead

Early on Wednesday morning, the German statistics agency Destatis will report the latest round of unemployment data.

The data comes bang in the middle of an important 10 days for the nation, with GDP, employment and consumption all in the spotlight ahead of a potential QE program in the overarching Eurozone. What, if any, impact will the release likely have on Draghi's decision come early June, and is there a trade setup in the Euro pairs? Let's take a look.

Germany has had a pretty rocky ride as late. GDP data continues to impress, but no amount of upside surprise has been enough to offer up a floor to the Euro against the majority of its major counterparts – especially the USD. Further to this, the recent European parliament elections have revealed just how alone the nation is as far as its people's views on the Eurozone is concerned. Individuals across a number of the major EU economies, including France, Spain and the UK, revealed their disdain for the economic region, as a range of Eurosceptic political parties took seats.

The German economy grew 0.4% in the final quarter of 2013, representing growth to the tune of twice the rate of the overarching Eurozone as a whole, and many of the zone's members are starting to question the benefits of their membership. This disruption could seriously damage the EU going forward, and with a large number of economies owing substantial amounts to Germany as a result of the wave of bail outs in 2012, it could also seriously damage Germany through both Euro pressure and an almost certain extension of the debt repayment terms.

All this paints a pretty dire picture for Germany, meaning the impact of any surprise release will likely be weighted towards the downside. What does this mean? Well, simply that an upside surprise will likely not have much of an impact on the value of the Euro versus its major counterparts, while a miss could catalyze a sustained downside break.

So what are the levels to keep an eye on?

Take a look at the EURUSD chart above. The Euro has had a mixed start to the week, with Monday gains recouping some of the losses seen on Friday. The recuperation was short lived however, as a combination of strong US data and a somewhat dovish Draghi speech has returned the pair to retest two-month lows. Consensus forecasts no change on last month's unemployment rate release, with an estimate of 6.7%. With this in mind, look for a better than expected release to have a pretty dampened impact, perhaps returning the pair to the Tuesday open resistance. Conversely, look for a miss to catalyze a break towards in term support at 1.3593. A break below this level is likely, and would bring 1.3560 into play as a secondary downside target.

 

[CapitalTrustMarkets]

Palladium Jumps To Highest level Since 2011

Market Sentiment: Bullish

Key Takeaways
• Palladium retraces from the multi-year high
• A rejection from the trendline shows downside risk in the short term
• Bias remains extremely bullish

Palladium rallied yesterday to the highest level in more than three years before facing rejection near the trendline resistance. The precious metal is expected to resume the correction phase from the current levels. The sentiment remains bullish due to Higher High and Higher Low in the recent waves.

Technical Analysis

As of this writing, the precious metal is being traded near $836 an ounce. A hurdle may be noted near $844, the trendline resistance as demonstrated in the following chart. A break and daily closing above the trendline resistance will push the metal into stronger bullish momentum, validating a rally towards the $900 milestone.

On the downside, the precious metal is likely to find a support around $830, the intraday low of yesterday ahead of $805 which is the confluence of 50% fib level and swing low of the previous wave. The metal is likely to print a Higher Low (HL) in the correction phase which will confirm the bullish sentiment in the long run.

US Jobless Claims

The US labor department will release the jobless claims report today as usual. The median projection of different economists say that the claims remained 318K during the week ended on 19 May as compared to 326K in the week before, better than expected actual outcome will be seen as bearish for the Palladium and vice versa. The report also plays key role in the monetary policy decisions of the Federal Reserve.

Trade Ideas

Keeping in view the overall technical and fundamental analysis, selling the precious metal around the current levels appears to be a good strategy, the stop should be placed at the high of yesterday while the target may be around the lower trendline as described above.

Another Interest Article By The Analyst: S&P500 Outlook

 

[CapitalTrustMarkets]

Japanese Inflation Data Shines Light On Policy

Fundamental Bias: Bullish Yen

Key Takeaways:

• Japanese inflation and consumer spending data set for release on Thursday evening
• Some analysts predict stagflation, so a bullish yen release would require better than expected data in both figures
• This scenario would offer up 136.561 as a potential downside 1-3 month downside EURJPY target

On a big day for fundamental data, traders will look to releases from both sides of the pacific to inject some volatility into Thursday’s markets.

Primary focus will initially be on the US headliners but as the day draws to a close, focus will shift to Japan and its upcoming inflation data. The Japanese economy is the subject of intense scrutiny at the moment, and right at the centre of that scrutiny is inflation, or lack thereof. For this reason, this evening’s release could determine the medium term direction of the Japanese yen and its major counterparts. Here’s what you need to know.

First, let’s quickly recap the reasons driving the scrutiny. As mentioned, it’s all about inflation. Japan has struggled with what economists refer to as stagflation for two decades, and Prime Minister Shinzo Abe’s three arrows policy - currently in full swing - was designed to tackle economic stagnation and the risk of deflation. So far, it seems to have been relatively ineffective, and many even suggest that the current combination of massive quantitative easing and slow or waning growth in output or demand is a recipe for deepened stagflation.

So, concurrent to the inflation data the Japanese Statistics bureau will also report the latest household spending figure. The only real bullish outcome for the yen is better than expected data in both - as it suggest that’s the money that Japanese policymakers have introduced into the Japanese economy is boosting demand, bringing it in line with inflation.

The setup surrounding today’s release then, is to look for a consensus beating release in both National CPI and retail spending and buy yen. As mentioned, the US data will likely skew the inferred bias in the USDJPY, so the EURJPY probably presents the better trade.

Take a look at the EURJPY chart below:

The pair went through something of a range bound phase between the end of February and the beginning of May, but the potential for some form of quantitative easing in Europe has put pressure on the Euro in recent weeks. A downside break around the middle of the month saw key support at 140.404 broken, and a sustained decline catalysed the breaking of further long term support at 139.312. This level now serves as in term resistance, so look for a bullish Japanese release to catalyze a break towards an initial target of yearly close lows at 136.561. Bear in mind that price may retest aforementioned in term resistance before the downside momentum takes hold, and this level could represent a nice risk management parameter.

*******
Samuel J Rae - Chief Currency Strategist at Capital Trust Markets

 

[CapitalTrustMarkets]

Canada Set To Outpace US Growth - But For How Long?

Fundamental bias: Long Term Bearish CAD

Key takeaways:

• Canadian inflation set for release on Friday morning
• The USD looks set to outpace the CAD long term
• Short term however, a better than expected release in Friday’s GDP figure could catalyze a break of long term support and offer up a short term bearish USDCAD bias.

As the markets open on Friday, Statistics Canada will report the latest round of GDP data.

The data comes at an interesting time, with the equivalent release in the US missing expectations on Wednesday morning. Will the Canadian release follow suit or can Canada separate itself from its neighbour? Further - what might be the implications of each scenario? Let’s take a look.

First, let’s take a quick look at what happened in the US. Consensus forecasted a US QoQ GDP release at a 0.5% contraction, and the report detailed an actual figure twice that at 1.0% contraction. The response as far as the USD was concerned was relatively mute, as the better than expected jobless claims release took the edge off any potential bear run. On the face of it, the decline looks like it could threaten any potential 2015 rate hike in the US, but the optimists remain adamant that it came as an overspill of the cold winter weather. So, with this latter reasoning in mind, you would expect a similar situation in Canada - but not exactly.

Consensus expects Canadian growth to have outpaced that of the US during the first quarter, with the forecast coming in at a small 1.7% expansion. Interestingly, the expectation is that the advantage Canada currently has over the US will be short lived, with recent data out of the two economies suggesting the US picking up pace while activity in Canada is waning somewhat. This remains to be seen, but the improving employment situation in the US coupled with the worsening employment outlook in Canada suggests that it may not be far wrong.

So how can you trade tomorrow’s release? Take a look at the USDCAD chart below.

The pair has consolidated somewhat over the past two weeks, having dipped sharply to its lowest level since January at the beginning of May. Longer term, and for the aforementioned reasons, the bias has to be bullish USDCAD, but this does not mean there is no downside potential. The USDCAD is currently trading just shy of the long term support hit early may, and today’s USD disappointment has offered up the potential for a near term retest. Look for better than expected growth in tomorrow’s GDP release to catalyze this retest, and a close below reveals a pretty clear run down to December resistance at 1.0707.

********
Samuel J Rae - Chief Currency Strategist at Capital Trust Markets