Recap: Europe, Australia, United Kingdom, Canada, and The United States.

This week was full of financial news. I will be talking about some of them, which I consider too important to pass up. I will also give my views on them.

Europe:

Last Monday (March 2, 2015), a report showed that Consumer Price Index (CPI) Flash Estimate ticked up to -0.3% year-over-year from previous -0.6%. Markets were expecting -0.4. The data was little positive. However, It remained in negative territory for the third consecutive month. There are deflation in euro zone. The deflation might soon end later in the mid-year, as Quantitative Easing (QE) program starts this Monday (March 9, 2015).

Last Thursday (March 5, 2015), European Central Bank (ECB) kept the interest rates unchanged. During the press conference, the President of ECB, Draghi stated that the QE would start on March 9. ECB raised its projections for the euro area, “which foresee annual real GDP increasing by 1.5% in 2015, 1.9% in 2016 and 2.1% in 2017.” Remember that these are just projections and can change anytime. Plus, central banks are not right all the time. Mr. Draghi felt confident as he talked about the future of Euro zone. He believes Euro zone will greatly benefit from QE program and some areas already have since the announcement of QE last January.

This week, EUR/USD fell all the way to 1.0838, lowest level since September 2003, due to positive U.S jobs reports, Greece worries and QE program starting next week. I was already short on EUR/USD and I still believe it has a room to go further down.

EUR/USD Hourly
EUR/USD – Hourly

Australia: 

Last Monday (March 2, 2015), Reserve Bank of Australia (RBA) announced that they will leave the interest rate unchanged at 2.25%. In February meeting, RBA cut by 0.25%. This time, they did not. RBA is in “wait and see” mode, for now. I believe another rate cut is coming in the two meetings, depending on future economic reports. In the Monetary Policy Decision statement by RBA Governor, Glenn Stevens stated that the Australian dollar “remains above most estimates of its fundamental value…A lower exchange rate is likely to be needed to achieve balanced growth in the economy…Further easing of policy may be appropriate…”.  I believe RBA is open to further cuts and it will come in the next two meetings. However, positive economic reports might change that direction. As economics reports come out from Australia, we will have better sense of what RBA might do.

Last Monday (March 2, 2015), Building Approvals report came out and it was very positive. It was expected at -1.8%. It came out at whooping 7.9% up 10.7% from previous -2.8%. It shows that more buildings are being built. Thus, creating jobs. However, Building Approvals reports show that building approvals tend to jump around every month. If the report continues to be positive, it might convince RBA to keep the rate unchanged.

Last Tuesday (March 3, 2015), Gross Domestic Product (GDP) came at 0.5%, up only 0.1% from previous report (0.4%). It came out little bit weak from what was expected, 0.7%. It’s still very weak and it might have larger impact on RBA’s future actions. I believe RBA will cut because GDP is not improving much.

Last Wednesday (March 4, 2015), Retail Sales and Trade Balance reports came out from Australia. Retail sales came out at 0.4% as expected from previous 0.2%.  Trade balance on goods and services were a deficit of $980 million, an increase of $480 million from December 2014 ($500 million). All these numbers are in seasonally adjusted term. I believe the gap in Trade Balance from the last two reports might convince RBA little bit to cut the rate again.

I would be short on AUD. I believe it has the potential to go further down to 0.7500. The best pair would be to short AUD/USD (Positive U.S news and upcoming rate hike).

AUD/USD Hourly
AUD/USD – Hourly

United Kingdom: 

Last Thursday, Bank of England (BoE) kept the interest rate unchanged at 0.50% and Quantitative Easing (QE) programme at £375bn. In March 2009, the BoE’s Monetary Policy Committee (MPC) unanimously voted to cut the interest rate to 0.50% from 1.00% (-.50%). The interest rate still stays unchanged and QE stays steady, for now. If future economic reports such as wages, and inflation declines or comes out negative, rate cut might come. If it does not, rate hike might come sooner than expected. I believe it will get better and MPC will decide to raise the rate, sending Pound (GBP) higher.

This week, Pound (GBP) fell after rising last week, due to little negative news from UK and that BoE rejected higher rate for some time being because of concerns in oil prices and inflation. I would not trade GBP at this time. If I’m going to trade GBP, I would analyze its chart first. Did you notice that last week GBP/USD had-daily bearish engulfing pattern and this week there is-weekly bearish engulfing pattern?

GBP/USD - Daily
GBP/USD – Daily
GBP/USD - Weekly
GBP/USD – Weekly

Canada:

Last Tuesday (March 3, 2015), Canadian Gross Domestic Product (GDP) came out little positive at 0.3% from previous -0.2% on monthly basis. It was expected at 0.2%. On quarterly basis, it came out at 0.6% following 0.8% in third quarter.

Last Wednesday (March 4, 2015), Bank of Canada (BoC) left the interest rate unchanged at 0.75% following 0.25% cut last month. Ever since BoC cut the rate last month due to falling oil prices; oil prices has risen and been in $50 range. If oil price continue to fall, I believe they will cut the rate again. There is strong relationship between Canada and oil. As oil gets weaker, Loonie (CAD) gets weaker. Why? Canada is ranked 3rd globally in proved oil reserves. When making a trade decision on CAD, I would look at the oil prices. Of course, I would also look at news and technical. For example, if I want to trade USD/CAD, I would look at both U.S and Canada economic news (rate hike/cut, employment, etc) and technical on chart. If U.S economic news are strong, Canada economic news are weak and USD/CAD is just above strong support line, I would definitely go long on it. However, let’s say if USD/CAD is just below strong resistance line, I would wait for confirmation of a breakout and if the news are in my favor, I would go long.

Last Friday (March 6, 2015), Building Permits and Trade Balance reports were strongly negative. Building Permits came out at -12.9%, following 6.1% the previous month, expected of -4.2%. Trade balance on goods and services were a deficit of -2.5 billion, following -1.2 billion the previous month, expected of -0.9 billion. Both reports were negative, which sent CAD lower. At the same time, U.S non-farm payrolls came out strong, which sent USD higher. As a result, USD/CAD skyrocketed. The reports will definitely be on BoC committee’s mind. As of right now, I would be short on USD/CAD.

This week, USD/CAD was mixed as BoC kept the interest rate unchanged, after cutting it last month (negative for USD/CAD) and strong U.S jobs report (positive for USD/CAD). I would be short on it as I said in the last paragraph.

USD/CAD - Hourly
USD/CAD – Hourly

United States:

Last Friday (March 6, 2015), U.S jobs report came out very strong except the wages. Employment increased by 295,000 (Expected: 240k) and unemployment rate went down 0.2% to 5.5% (Expected: 5.6%). However, average hourly earning fell 0.1%, following 0.5% the previous month (Expected: 0.2%). But, that hourly wages part of the report did not stop U.S Dollar from rising. It was very positive for the U.S dollar because there is little higher chance of rate hike coming in the mid-year.

Since U.S economic news tends to have impact on global markets, here’s what happened; U.S Dollar rose, U.S stock fell, European stock rose, Euro dived, Gold prices fell and Treasury Yield jumped. EUR/USD fell to 1.0838, lowest level since September 2003. USD/JPY rose to 121.28, a two-month high.

So why did U.S stocks sold off? It sold off because of upcoming rate hike, which can be negative for equities, specifically for dividend stocks. As economy is getting better, it should help boost corporate profits. At the same time, strong dollar can hurt them. Rate hike can only make dollar even stronger.

In two weeks, the Fed will be meeting and I believe they might drop the “patient” in its March policy statement.

I would be long USD. The best pairs would be to short EUR/USD (Euro zone delfation, Greece crisis and QE program) and short NZD/USD (RBNZ keeps saying that NZD is too high and they will meeting next week, rate cut?) as I’m already short NZD/USD, and long USD/JPY (Upcoming U.S rate hike and extra stimulus BoJ might announce).

Dow Jones Industrial (DJI) - Hourly
Dow Jones Industrial (DJI) – Hourly
Nasdaq - Hourly
Nasdaq – Hourly
Standard & Poor 500 (S&P 500) - Hourly
Standard & Poor 500 (S&P 500) – Hourly
USD/JPY - Hourly
USD/JPY – Hourly
NZD/USD - Daily
NZD/USD – Daily

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SNB Shocks Global Markets

Last Thursday (January 15) around 4:30 a.m, SNB (Swiss National Bank) surprised everybody and woke the markets up by ending the minimum exchange rate of CHF 1.20 per euro and lowering interest rate to -0.75% from -0.25%. The announcement was unscheduled. It was shocking to everybody and there’s more come to the story.

After seconds of the announcement, CHF rode in fastest  bull mode in the modern history. EUR/CHF went on free fall with no ground stop. SNB’s floor rate of 1.2000 for EUR/CHF was broken. A lot of people were long EUR/CHF with stops just below 1.2000. Not only the CHF pairs were effected, but also other pairs. Stops were triggered in seconds (or minutes) and panic spread like wildfire. Imagine a highway with all the automobiles driving more than 200mph and large truck in the middle suddenly stops in a second.

In September 2011, Swiss National Bank (SNB) called its currency (Swiss Franc) “Massive Overvaluation”. They wanted to weaken the Swiss Franc to improve their economy. Therefore, they set a floor rate of 1.2000 of EUR/CHF exchange rate. In a statement, they stated “The SNB will enforce this minimum rate with the utmost determination”. They were saying that they will do everything in their power not to allow the exchange rate break the floor rate. Their tone was still same in the late 2014. Ever since, they have been buying the foreign exchange in unlimited quantities, until last thursday (January 15, 2015).

After abandoning its currency, SNB stated that “Swiss franc is still high”. Well, it is even more higher now. Immediately after the announcement, CHF pairs sky-rocketed. EUR/CHF dropped from above 1.2000 to about 0.9705, over 2000 pips drop in one day. USD/CHF dropped from around 1.0200 to 0.8350, almost 2000 pips drop in one day. The reason for SNB’s action “divergences between the monetary policies of the major currency areas have in increased significantly”. They are referring to Euro, which has depreciated a lot against USD, which has caused Swiss franc to weaken. That’s why they say that defending floor rate “no longer justified”. At the end of their statement, they said “remain active in the foreign exchange market to influence monetary conditions”. That’s what scares me. After what they did, we need to be cautious and not trade CHF pairs at this time.

 

EUR-CHF
EUR/CHF – Weekly

 

USD-CHF
USD/CHF – Weekly

 

SNB’s action looks suspicion for two reasons. First, SNB announces this sudden change of plans just a week before ECB meeting. Second, it looks like that IMF (International Monetary Fund) was not kept in loop.  I believe SNB is trying to buy time. The question is “For what?”. If they are trying to buy time, the move by SNB is only temporary (less 4 months).

 

2015-01-16-PROPHET
Comparison Chart – EUR/USD and USD/CHF

 

As to ECB, they have been decreasing the interest rates, which has caused Euro to decline a lot.. This week on Thursday (January 22, 2015), ECB will be releasing the results of their meeting. There has been a chatter (still is) that ECB will be announcing a full-blown Quantitative Easing (QE). At this time, I believe the interest rates will stay the same. Regarding to QE, I think QE will be announced, but limited. They might wait for Greek election results, which takes place on Sunday (January 25, 2015). Greece may exit Euro union and have their own currency. If they do, the currency will go down in value. I think full-blown QE will be announced in March 5.

Not only traders were effected, but also brokers such as FXCM. FXCM experienced significant losses ($225 million) and they may be in a breach of some regulatory capital requirements. When the news came out, their stock “FXCM” fell from around $12.50 to just below $1 (about 90% decline). In the morning of Friday, its stock was halt due to news pending. At 3:55, Dow Jones reported that Leucaidia National Corporation would be proving $300 million in cash to FXCM to continue normal operations. The agreement is in the form $300 million senior secured term loan with two-year maturity and an initial coupon of 10%. Immediately after the news, FXCM surged from around $1.50 to $4.50 (about 350% increase).

FXCM Ticker - SNB Effect
“FXCM” stock