The EUR/USD has been range bound during June trading in between 1.1360 and 1.1190 with the exception of a two day period in which it slipped below support, following a stronger than expected U.S. Jobs report. The last major U.S. economic data points, retail sales, which was stronger than expected and likely to boost Q2 GDP, was largely ignored.
Even despite all the issue related to Greece, EUR/USD trading has been very choppy with little downside follow through. The Bollinger band low (2-standard deviations below the 20-hour moving average) has acted a robust support. An hourly close below the recent lows at 1.1150, would lead to a retest of the post Non-farm Payroll lows near 1.1050.
The Bollinger band high (2-standard deviations above the 20-hour moving average) seems to be solid resistance. An hourly close above 1.13 will likely lead to a test of the 2-week highs at 1.1385.
The upward bias is confirmed by the increase of hourly momentum reflected by the MACD (moving average convergence divergence) index. The hourly MACD generated a buy signal on Monday which points to higher prices. This occurs as the spread (the 12-hour moving average minus the 26-hour moving average) crosses above the 9-hour moving average of the spread.
Crude oil prices were unable to push through daily resistance levels, and has slumped lower over the course of the last 2-trading sessions. Geopolitical tensions over Greece was the fundamental reason of the day for declining oil prices, but lower hourly highs are generating headwinds and reflecting robust supply.
Prices are hovering around the 200-hour moving average at $59.60 per barrel, which is just below a downward sloping trend line that connects Friday’s high Monday’s highs and comes in near $59.70. Short term support is seen near Monday’s lows at $58.95, and then again at the lows made on Monday June 8, at $58.00.
The relative strength index (RSI) has been a robust guide to hourly overbought and oversold levels. The RSI is an oscillator that measures momentum as well as when a security is overbought (above 70) or oversold (below 30). The hourly RSI has been printing in a range between 80 and 25, showing traders levels that are good times to purchase oil and prudent times to short oil. The current reading of 49, is now in the middle of the range.
Natural gas prices surged early in the week as forecasts for hotter than normal temperatures stoked fears of higher demand for gas fired electricity. Prices retreated on Thursday and on Friday broke through short term support near the 5-day moving average near 2.805.
Throughout 2015 natural gas prices have traded in a relatively tight range between 2.55 and 3.25. After pushing through the 5-day moving average the next level of target support is seen near the April and June lows at 2.545.
Resistance on natural gas prices are seen near the 5 and 20-day moving average which are now near the same levels at 2.805, and 2.81 respectively.
It appear that the 5-day moving average crossover of the 20-day moving average, which generally reflects a short term up trend, was a fake out, which could now force many who purchased natural gas following the weather forecasts out of long positions.
Momentum has flatted with the MACD printing right near the zero index level in positive territory after generating a buy signal earlier in the week. Traders could look to establish long positions as natural gas prices approach support near the 2.55 level. A close above 2.92 would likely lead to a test of trend line resistance near 3.14.
The EUR/USD ending the week up a nearly a big figure and a half, as a selloff in German Bunds and positive momentum lifted the currency pair. Prices during the past week were very choppy whipping around between 1.1080 and 1.1380. Since retesting support in early April, price are in the process of a slow grind higher, despite better than expected US data, which should generate tailwinds for the greenback.
Momentum on the currency pair turned positive as the beginning of the week as the MACD (moving average convergence divergence) index generated a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The trajectory of the MACD index is positive pointing to a higher exchange rate.
Resistance is seen near a downward sloping trend line that connects the highs in May to the high in June and comes in near 1.1380. A close above this level should generate a test of the May highs at 1.1465. Prices are hovering around the 38.2% Fibonacci retracement level which reflects the rebound from the highs in December to the lows in March.
Short term support is seen near the 10-day moving average at 1.1207, and then again at the 50-day moving average at 1.032. A close below 1.0940, which coincides with an upward sloping trend line that connects the lows in April to the lows in May would signal a move back to the April lows.
Crude oil prices edged lower on Friday but had a solid week following the better than expected draw in U.S. crude oil inventories reported Wednesday by the Department of Energy. Price action has been range bound over the past month, but it appears oil prices are attempting to push through resistance.
The consolidative tone formed a flag pattern after climbing $16 per barrel since mid-March. Prices closed above a downward sloping trend line on Wednesday that connected the highs in May to the high on June 2, generating a minor break out. On Thursday, prices retested the trend line and Friday’s lackluster trade puts prices back into a range between $61.78 and $56.85. Short term support is seen near the 10-day moving average at $59.68.
Momentum has turned positive as the MACD (moving average convergence divergence) index generated a buy signal. This occurs as the spread (the 12-day moving average minus the 26-day moving average crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal. This is a positive sign for prices. Look for a close above $61.78 to confirm the continuation of an upward trend. A close below the 10-day moving average could generate a test of support near $57.20.
Support and resistance are key components to any trading strategy. Once you determine that a financial security is a robust candidate to catch a specific move, finding the correct entry and exit levels are key to long term success. Which risk management is the most important equation in creating a successful trading strategy, the entry level usually gets most investors attention.
Trend lines are often used to determine of a market is breaking out. A trend line is either support or resistance and usually connects 2 or more points, and a close above (or below) the slope of the trend line usually signals a breakout (or breakdown).
The most difficult part of finding this type of breakout is creating an objective trend line. There are many questions investors have with regard to this subject. For example, should a trend line be based on a close only chart of an open high low close chart? Should you use the closing point to determine the breakout or breakdown or is an intra-day breach satisfactory?
One of the best technical analysis studies on trend lines is Tom DeMarks trend line analysis. DeMark created the TD (Tom DeMark) trend lines which help chartists formulate objective trend lines that follow specific rules each time they are used.
The DeMark trend line is upward sloping for trend line that create support and downward sloping for trend line that generate resistance. Many times analysts will created trend lines that alter these rules, for examples when a channel is created resistance might be upward sloping, but in DeMarks world this rule is hard fast.
TD Trend Lines
The TD trend line only uses the open high low close chart (or a Candle chart). The line only chart does not enough information for the TD line to be pertinent. This is because DeMark believe that the pivot high point reflects the most important resistance area while the pivot low point reflects the most important support level.
The basic TD trend line connects the most recent low that is surrounded by a higher low on each to the next lower low that is also surrounded by a higher low on each side. These two lines are connected and the slope of the trend line hits a point that is your new support level. A stronger level of support that can be used as a breakdown level connects a low which has two higher lows on each side to the next lower low with two lows on each side.
The most robust TD trend line connects a low surrounded by three higher lows on each side to the next lower low surrounded by three higher lows. The slope of this trend line is the most significant. When the price of a security closed below the TD trend line a breakdown has occurred.
The same technique is used to create TD resistance lines and they have the same premise with a basic TD and then more robust TD lines.
Trend line development is an important concept that should be used to determine where a trader should enter the market. Using TD lines is an objective way to consistently enter trades in an objective manner.
Most of us are familiar with Fibonacci retracements. If you are not, you can find information all over the internet about the mathematician who lived in Italy between 1170 and 1250, who formulized mathematical term using what he observed in nature. His discoveries have been used by technical analysts for decades, but these targets are only helpful if they can be used to define a trade.
Technicians have focused on the Fibonacci a sequence which forms the basis of the Fibonacci retracement. The most famous retracements are the 38.2%, 50%, and 61.8%. A relatively standard use of the Fibonacci retracement is the gauge how much an asset will retrace after ascending or declining.
For example, if the price of asset XYZ drops from $100 to $40, then the Fibonacci retracement levels would be $60 the difference * 38.2%, 50% and 61.8%, and then added back to $40 to find the levels the market should retrace to which would be $62.9, $70 and $77.
The real question is what will likely happen if the market starts following this self-fulfilling prophesy and retracing toward these levels? Will they stop at the 38.2% retracement, or will the asset continue to climb? Now if you knew that, you would have an excellent advantage. As opposed to picking indiscriminate levels to buy or sell and asset, you would have a target point to place a trade, as the market moved toward pre-determined points.
The key is to add another layer on top of the Fibonacci retracements to determine if the target levels Once the market arrives, you can use other indicators to determine if momentum is strong and prices are likely to push through to the next retracement level, or if the market is overbought or oversold and it will pause, and turn in the other direction.
The Fibonacci levels, give us a place to measure the market, and since many people are evaluating price action at those point, we use that to pin point the markets temperature. Gauging the temperature of the market at these levels is the key to success.
For example, the Euro soared from its low in 2001 up to a high of 1.60 before beginning to move lower after the US financial crisis. As it moved lower it retraced back to a number of key Fibonacci levels. The first being the 38.2% retracement level.
Here the EUR/USD approached a retracement level just as negative momentum accelerated to a higher gear, foreshadowing a continued downward slide. The MACD (moving average convergence divergence) index generated a sell signal as the spread (the 12-day moving average minus the 26-day moving average) crossed below the 9-day moving average of the spread. The index moved from positive to negative territory confirming the sell signal.
Weekly price action eventually stopped at the 50% retracement. In June of 2015, the Euro held support levels near the 61.8% retracement. Will it bounce or continue? While the RSI (relative strength index), a momentum oscillator is flashing an oversold signal, which foreshadows a correction. The reading of 28.7, is below the oversold trigger level of 30. The MACD has not yet turned, and is still reflecting accelerating negative momentum. A third confirmation on this trade would be a MACD buy signal.
By using a combination of different indicators a trader can use the Fibonacci retracement levels as targets that will tested, and will be defined by support or an area where the market paused only to refresh.
The moving average crossover strategy is geared toward finding the middle of a trend. A trend defines price action in which prices move in a specific direction over a period of time. Generally trends are either upward or downward, as sideways movements are considered consolidation and not trends. Most of the time, approximately 70%, capital markets trade in tight consolidative patterns and only trend 30% of the time. With this in mind, it is import to be able to define a trend and jump on as soon as it is recognizable.
How to Capture a Trend
Short term trends can be captured using short term moving averages. A moving average is the average of a specific period, and when a new data point is added, the first period of the average is dropped. A moving average crossover strategy looks for periods when a short term moving average crosses either above or below a longer term moving average to define a short term trend.
For example, when the 5-day moving average of the USD/JPY prices crosses above the 20-day moving average of USD/JPY prices, a short term trend could be considered in place. One trading technique could be to purchase the USD/JPY prices when the moving averages cross over looking to ride an uptrend in the currency pair. By combining a short, medium term and long term moving average, an investor can attempt capture up, down and sideways movements.
Longer moving averages are gauged to capture longer term trends within a financial market. When the 20-day moving average of gold prices crosses below the 50-day moving average, as seen in the chart of gold, a medium term trend is considered in place.
Issues with a Standard Moving Average Crossover
The concept of a moving average crossover seems great, but a fundamental problem is that when the market is consolidating, a moving average crossover will give a number of false signals. During the period between April 2014 and April 2015, the 5 / 20 moving average crossover produced 5-signals that did not foreshadow a trend. This does not mean you would not have made money trading this strategy, but you would not have experience an upward (or downward) bias in the currency pair that would be consider significant.
One way to enhance a moving average crossover strategy is to add an additional study that will weed out some of the false signals. For example, by adding a Bollinger band (created by John Bollinger – this study helps define a histogram of prices above and below a mean level) to the 5 /20 crossover strategy you can also help define a range.
In the case of the USD/JPY you could only purchase the USD/JPY currency pair when the 5-day moving average crosses the 20-day moving average and the exchange rate crosses above the Bollinger band high (2-standard deviations above the 20-day moving average) with an x days period. The number of days (x) is subjective, but using a period of less than 3-days is preferable. By adding an additional layer, the strategy becomes more robust, but also less frequent.
Traders over the past few trading session have been focusing on rising yields especially in the US and Europe. Bunds and treasuries have tumbled in price ahead of Friday’s payroll report, which generated significant headwinds for stock prices. The fear within the market place is that economic data in Germany would push the ECB to taper its bond purchase program while the Fed would believe it should increase rates in June 2015.
Prior to the release of the US payroll report, it was difficult to think of a number that would be good for stocks. To low would see treasuries rally, but would stocks gain? To high would likely push yields above 2.30% and that would be a break out sending stocks lower. It would need to be right on consensus with maybe some minor downward revision and that is what the market received.
Stocks vaulted higher encouraged by the jobs report that demonstrated a solid headline gain and lower jobless rate, accompanied by a downward revision in March and pretty tame wage and hourly earnings gains that should keep the Fed hopeful for a spring thaw for the economy, but in no rush to push the lift-off button. The 10-year yield moved down to 2.12 but settled in near 2.14.
U.S. nonfarm payrolls rose 223k in April, with the unemployment rate at 5.4% versus 5.5% previously. March’s 126k job gain was revised down to 85k, while February’s 264k was bumped up to 266k. Earnings rose 0.1% after a 0.2% March gain. This number was very important as it shows stronger jobs but tame inflation as reflected by wages. The workweek was steady at 34.5. Household employment rose 192k. The labor market participation rate edged up to 62.8% versus 62.7% in March. Private sector jobs increased 213k with the goods producing adding 31k, while construction surged 45k, with manufacturing up 1k. The service sector added 182k.
Cable has settled after surging on the election news. Sterling logged a 10-week high at 1.5522, but has since consolidated a big figure lower. The pound had bolted higher, from 1.5245, as soon as the official exit poll predicted that the Conservatives were set to win with a decent majority. In fact the Conservatives have done a little better than the exit poll suggested, and are set to win the UK election with 325 seats, according to the latest forecast.
The left-wing SNP have won the Scottish vote by a landslide, winning 55 of 58 seats, which will give them mandate to put Scottish independence back on the agenda. For markets, brushing aside the Scottish issue, this is a good result, avoiding a hung parliament scenario and mandating the most pro-business party. While the Conservative’s success will bring a referendum on EU membership in 2017, opinion polls suggest there is strong support for remaining within Europe.
For the BoE the outcome of the election may also well be decisive for its interest rate path. In fact the BoE has delayed this month’s policy meeting until next week, due to the election, with the MPC scheduled to announce its decision on May 11. For now the most likely scenario remains a rate hike in Q1 next year. Fresh turmoil in the Eurozone following a possible Greek exit would clearly also have negative spillover effects for the U.K. economy and could further delay any monetary tightening by the BoE.
Resistance on the currency pair is seen near the February highs at 1.5560, while support is seen near the 10-day moving average at 1.5280. Momentum remains positive with the MACD (moving average convergence divergence) index printing in positive territory with an upward sloping trajectory.
The jobs picture continues to be mixed leading into Friday’s non-farm payroll report which should drive price action for the balance of the month. Stocks and bonds have both traded on the defensive during the past week, as traders fear a stronger than expected jobs report which could lead to a June Fed tightening.
Jobless claims were stronger than expected, and over the course of the past month point to a robust payroll report this Friday. U.S. initial jobless claims rose 3k to 265k in the week ended May 2, from last week’s 34k drop to 262k. The 4-week moving average fell to 279.5k from 283.75k. Continuing claims fell another 28k to 2,228k in the week ended April 25, after diving 71k to 2,256k previously. These are some of the lowest levels since 2000.
Offsetting this stronger report was weaker than expected layoffs. U.S. Challenger reported announced layoffs rose 25k in April to 61.6k, more than erasing the 14k decline in March and the 2.5k slip in February. Compared to last year, announced job cuts have surged 52.8% year over year, the largest annual increase since August 2013 when it climbed 56.5. Not surprisingly, the energy industry paced announced layoffs last month, rising 18.5k, followed by consumer products at 5.4k. Announced hiring’s increased 7.5k to 13.9k, led by telecommunications.
US equities cut their losses even as the rolling rout cascaded into Asia and back into Europe once again. Yellen’s remarks about high equity valuations and low bond returns Wednesday struck a chord and added to the asset exodus overseas, though U.S. futures trimmed the bulk of their losses ahead of the open. In company news, Alibaba surged 8% after naming Daniel Zhang as CEO and confirming a 45% rise in revenues. Momentum on the Nasdaq has turned negative with the MACD (moving average convergence divergence) index generating a sell signal.
EUR/USD hit a fresh 10-week peak at 1.1391. EUR/JPY also traded to a new four-month peak, while the euro also managed to perk up against the recently outperforming Aussie. Generally encouraging signs of improving growth in the Eurozone are feeding a market narrative that the ECB may become less committed to its current QE program, and could eventually consider tapering the program. Strong growth is offsetting the specter of a continued lack of breakthrough in bailout negotiations between Greece and its creditors. Officials issued a statement Wednesday stressing that they continue to work with Greece with the aim to reach financial stability and growth, but hopes of a May 11 deal are fading.
In economic news, German March manufacturing orders rose 0.9% month over month, slightly below consensus forecast, which hoped for a stronger rebound from the two months of contraction, especially as current condition indicators in confidence indicators had been strong. Still, the return to growth coupled with still robust ZEW, Ifo and PMI readings confirms that the German economy remains on track. Indeed, the modest manufacturing numbers are also a sign that the German recovery this time around is less driven by exports, but domestic demand and consumption as real disposable income is boosted by robust wages growth, a solid labor market and low inflation.
French industrial production data disappointed and dropped 0.3% month over month in March, although February was revised markedly higher to 0.5% month over month from 0.0% month over month reported initially. Manufacturing production meanwhile rose 0.3% month over month, and with February data also revised higher, the annual rate moved into positive territory for the first time since September last year. So some glimmers of hope, although France’s disappointing PMI readings highlight France’s lack of competitiveness and the lack of structural reforms, which are likely to ensure economic underperformance for some time to come.
Crude oil prices rallied to fresh five-month highs of $62.04, with the move helped by API’s inventory report on Tuesday, which revealed a 1.5 million barrel draw in stocks. EIA data at 10:30 EDT will be watched closely for confirmation. Meanwhile, geopolitical tensions remain, as conflict in Libya pose threats to oil shipping lanes, and as Libya production slows due to unrest there. Wednesday’s weaker than expected ADP private payroll report should weigh on the dollar and help further boost crude oil prices.
Overall however, with OPEC keeping the spigots nearly wide open, global supplies remain in surplus, which will likely lead to an oil price pullback at some point. Meanwhile, gasoline futures have put in a string of 10 higher daily highs, and are approaching six-month highs, peaking today at $2.0932/gallon. U.S. average retail gasoline prices are at highs of the year, currently at $2.64/gallon, and up 55 cents since January, according to AAA data.
U.S. ADP private payroll survey showed jobs rose 169k in April, disappointing expectations. March’s 189k gain was nudged down to 175k. The goods producing sector lost 1k jobs, while services added 170k. Construction jobs rose 23k, but manufacturing jobs declined 10k. Financial and accounting added only 7k. Professional and business services employment rose 34k. And trade, transportation, utilities jobs increased 44k. Small firms added 94k workers, but large firms added only 5k. The lean 169k April ADP rise undershot the 210k private payroll forecast, with a 220k total nonfarm payroll estimate likely to move lower over the next few days prior to the BLS report on Friday. Yields in the US moved lower following the ADP payroll release which in turn generated minor headwinds for the greenback. A stronger dollar is usually negative for oil prices so this change in payrolls might create additional tailwinds for crude oil prices.
Sterling steadied after underperforming during the past week as market participants finally woke up to the uncertainties in UK politics that Thursday’s general election is set to mark. The polls consistently put the right-leaning Conservative Party in the lead, but well short of an outright majority, which leaves the possibility of a weak left-leaning Labor-SNP (Scottish Nationalist Party) coalition government forming.
Cable moved up to 1.5210 making a higher high than the previous day after last week’s sharp U-turn from a high at 1.5498 late last week. U.S. April payrolls on Friday are likely to be dollar supportive, while post-election political negotiations are likely to be chaotic and drag on, and there is a risk that another election will be called.
In economic news, UK Markit services PMI unexpectedly rose to 59.5 in April, an eight-month high, from March’s 58.9. The median forecasted was for a decline to 57.7. The composite PMI still declined, however, to 58.4 from 58.7 due to the big, unexpected declines in both the manufacturing and construction PMI outcomes.
Weakness in the construction data were blamed on clients delaying budgets and new project commitments ahead of the election, while the manufacturing PMI was weighed on by a drop off in export performance due to sterling’s strength against the euro. Markit estimates that the composite PMI would be consistent with Q2 GDP growth of 0.8%, which would mark a rebound from Q1’s disappointing 0.3%.
The first release on US Q1 productivity is out on Wednesday and should reveal a -1.7% headline decline which follows a -2.2% decline in Q4. Unit labor costs should be up 4.1% following a 4.1% figure for Q4. US private ADP payrolls is expected to show a gain of 200K jobs, which should help lift the greenback.
The USD/CAD rallied initially following the sharp increase in Canada’s trade deficit, though was quickly offset by the massive U.S. deficit increase. The pairing popped to 1.2121 highs from 1.2090, though has since fallen back into 1.2050. Next support is seen into 1.2000.
The Canada trade deficit widened to a record -$3.0 billion in March, much worse than expected but not a shock given the uncertainty surrounding the impact of energy prices and volumes during March. The February deficit was revised sharply lower to -$2.2 billion from the original -$1.0 billion, due to revision to energy product exports. Expect another hefty revision to March’s 0.4% estimate, making today’s trade numbers quite preliminary.
Exports rose 0.4% month over month in March, held back by a 8.9% drop in energy product exports, following a revised 2.3% drop in February. Exports excluding energy products rose 2.4% month over month in March. Imports bounced 2.2% month over month in March, driven by a 7.9% month over month gain in consumer goods, after the revised 1.4% pull-back in February.
The U.S. trade deficit widened 43.3% to $51.4 billion in March after narrowing 15.9% to $35.9 billion. Imports rebounded 7.7% after February’s 4.2% decline. It’s the biggest gap since October 2008. Exports rose 0.9% after sliding 1.6% previously, and is the first increase since October. Excluding petroleum, the trade deficit was $43.7 billion compared to the -$27.7 billion in February. The deficit with China was $31.2 billion versus -$22.5 billion previously. The wider than expected deficit could further shave growth from Q1 GDP, and that could help underpin Treasuries, and therefore weigh on the US dollar.
Sterling continues to under perform as market participants begin to realize the potential change in UK politics that Thursday’s general election is set to mark. Polls have consistently put the right-leaning Conservative Party in the lead, but, with 270 seats projected to be won by the latest poll projector, is a long way short of the 326 seats needed to form an outright majority. Tuesday’s weaker than expected construction PMI did little to buoy cable.
The combined support of the Conservatives and Liberal Democrats, which form the current coalition government, is projected at just 301, while the combined support of the left-leaning Labor and Scottish Nationalists parties is 324. The general view is that an alliance of more than 322 MPs could probably survive a confidence vote. Labor have thus far rejected any talk of hooking up with the SNP, which makes sense as it focuses last-minute campaigning efforts on undecided voters. Assuming the party wants power, a deal with the SNP may be inevitable.
The April UK Markit construction purchasing managers index missed expectations by some margin, with the headline reading diving to 54.2 from 57.8, well below the median forecast for a modest dip to 57.3. This is the lowest number in almost two years. The blame rests on the uncertainties that the upcoming general election is bringing, which, Markit reports, has seen clients of construction firms delay budget setting and reduce their propensity to commit to new projects. All three sub-sectors which include residential, commercial and civil engineering work saw a contraction in activity. Last week’s release of the April manufacturing PMI also disappointed, and the same fate will likely be seen in tomorrow’s services PMI. Sterling took a knock on the data, though the impact hasn’t been great as the pound has been trading lower for several days already.
U.S. equity extended gains moving higher again despite stalled Greek talks, with mixed trade in Asia as the China PMI sank to 48.9. The Euro Stoxx 50 gained over 1% to start the week after a firm 52.0 reading on final EMU PMI, paced by a 1.5% bounce in the German DAX.
In corporate action, Comcast beat the Street and confirmed another $2.5 billion in stock buybacks, boosting its shares 2%. McDonald’s is also expected to offer a turnaround plan today to investors, as CEO Easterbrook seeks to tackle the company’s worst slump in a decade. Its shares firmed ahead of the news. Changes could involve its real estate portfolio, refranchising, rebuilding franchise relations, customization, and simplify and modernize its menu. Cisco also announced CEO John Chambers will step down.
Friday’s April nonfarm payroll report may keep yields elevated. The median forecast is for a gain of 220k in jobs, bouncing back from the disappointing 126k March gain. Recent initial jobless claims have suggested the labor market remains strong, and that the temporary factors weighed on Q1 growth were partly responsible for the modest increase in employment. A better than expected report would reignite worries that the FOMC could hike rates as soon as June, if not July.
This week’s other reports are liable to take second fiddle to overseas events, unless there are some major surprises. The April ISM non-manufacturing index scheduled for Tuesday should be steady at 56.5, after dipping 0.4 points to that level in March. Activity has been generally slower since the index hit 58.8 in November, the highest since November 2005. The March trade release also released Tuesday, will be of great interest after the much weaker than expected 0.2% increase in Q2 GDP, thanks in part to a huge $50.7 billion net export subtraction. The ADP private payroll survey scheduled for Wednesday is forecast posting a 200k increase following March’s tepid 189k.
The EUR/USD has traded lower Monday, following seven straight up days through to Friday. Final PMI data out of the Eurozone has had little impact. Greece remains an issue. Despite signs that the government in Athens has adopted an improved attitude, news reports from weekend negotiations suggest that fundamental differences remain with creditors, particularly on pension reform and privatisation proposals. EUR/USD has logged an intraday low at 1.1127, which is down by 96 pips on the intraday peak.
The Eurozone final April manufacturing PMI was revised marginally higher to 52.0 from 51.9 reported initially, but still down from 52.2 in March. The country breakdown showed a slight upward revision to the German reading, while the French number was revised even lower and at 48.0 points to firm contraction in the manufacturing sector. The Italian reading came in higher than expected at a solid 53.8, while the Spanish number fell marginally to a still strong 54.2 from 54.3 in March.
French underperformance highlights the lack of structural reforms in the Eurozone’s second largest economy and the government can no longer blame a strong EUR for the ongoing weakness, which exposes the lack of competitiveness. Overall though data backs expectations for a gradual strengthening of the Eurozone economy, even if manufacturing growth slowed slightly at the start of the second quarter.
Eurozone Sentix Investor confidence dropped to 19.6 in May from 20.0 in April. This was the first decline since at least October last year, with expectations falling from high levels, while the current conditions indicator continues to improve. Grexit concerns as well as concerns about the global economy are weighing on confidence, although readings remain at high levels and even the drop in May was less pronounced than feared.
Crude oil prices are trading at the top end of a well-defined range with a floor at $58.38, and peaking at $59.85. The dollar’s sell-off, and slowing gains in U.S. inventories have been the major driver behind oil’s recent gains, though global supply continues to outstrip demand.
OPEC announced that it produced over 31 million barrels per day in April, a two-year high, as Iraq pumped a record 3.1 million barrels last month. U.S. shale production has slowed, though with oil prices back to profitable levels for many fracking fields, further slowing in U.S. supply is expected to be limited. Meanwhile, gasoline prices touched new five-month highs over $2.05/gallon, as U.S. average retail prices rise 2 cents/gallon from Thursday, and are up 10 cents from a week ago, at $2.60/gallon, according to AAA data.
Inventory builds in crude oil were positive, but smaller than expected. U.S. commercial crude oil inventories increased by 1.9 million barrels from the previous week. This compares to the 3.0 million barrel build expected by analyst. At 490.9 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years.
Demand was strong in jet fuel, as well as gasoline, but now that winter has finally come to a close, demand for heating oil has declined. Total products demand over the last four-week period averaged over 19.2 million barrels per day, up by 4.4% from the same period last year. Over the last four weeks, gasoline demand averaged over 8.9 million barrels per day, up by 2.6% from the same period last year. Distillate fuel demand averaged about 4.0 million barrels per day over the last four weeks, up by 0.2% from the same period last year. Jet fuel demand is up 11.9% compared to the same four-week period last year.
Sterling has traded lower in the wake of UK data releases, specifically the big miss in the April Markit manufacturing PMI survey. The market overlooked BoE lending data for March, which showed marked increases in lending to both consumers and businesses. The BoE has in the recent past expressed concern about currency strength, and sterling’s strength against the euro was pinpointed by Markit as undermining exports of manufactured goods, which may explain the market’s sensitivity to the PMI report.
The UK April Markit PMI unexpectedly dove to 51.9 from 54.0 in March, revised from 54.4. This marks the slowest rate of expansion since November, while the base of the growth narrowed and became more skewed on the consumer sector. A drop in new work received from aboard offset decent domestic demand. Sterling’s strength against the euro has been curtailing competitiveness in the export sector. On the plus side, April marked the 25th consecutive month of expansion. Employment increased for a 24th straight month.
Price pressures remained muted, with both input and output costs falling, and the latter by the steepest rate since September 2009. Overall, the report points to a significant slowing in the manufacturing sector.
UK lending data showed a boom in unsecured consumer lending, which rose to GBP 1.2 billion in March data from the BoE, up from 0.7 billion in the previous month. This is the biggest figure since the pre-financial crisis boom days of February 2008. Recent increases in real wages and a strengthening labor market have boosted consumer confidence, which was also reflected by strength in the consumer demand component of the just-released manufacturing PMI report.
Mortgage approvals dipped slightly, to 61.3k, down from 61.5k, maintaining an overall soft underlying trend that has been seen since tighter lending criteria were introduced last year. The most encouraging part of the report is that lending to business, which has been a significant weak spot in recent years, rose to GBP 2.7 billion the biggest monthly increase since records began in mid-2011.