CRUDE OIL GAINS, WEAK U.S. JOB DATA

Signalsgowin.com–Crude oil prices rose after weaker-than-expected U.S. jobs data, the Federal Reserve will scale down its bond-buying program. 

Light sweet crude futures for delivery in February rose 0.08% at USD93.02; Nymex oil futures tested support at USD91.24/barrel and resistance at USD94.18/barrel.

The unemployment rate fell to a five-year low of 6.7%, the labor participation rate fell to an almost 35-year low of 62.8%.

The Fed was keen to stress that further reductions in stimulus, the central bank is scheduled to meet January 28-29 to review the economy and assess policy.

The dollar index declined 0.01% at 80.73, Dollar-denominated oil futures contracts tend to rise when the dollar falls, as this makes oil cheaper for buyers in other currencies.  
Speculators sharply increased their net-short exposure to NYMEX crude futures. Money managers boosted their net short oil positions by 18,115 contracts to 52,674, reducing net long positions by 3,576 contracts to 293,342.

Brent oil futures for February delivery advanced 0.81% at USD107.25/barrel,
the February Brent contract inched up 0.20%, the spread between the Brent and the crude contracts stood at USD13.80 a barrel.

CENTRAL BANK INTEREST RATES

1. FED (Federal Reserve):

Interest rate: 0.00%-0.25%

Next meeting: 2014.01.29

2. ECB (European Central Bank):

Interest rate: 0.25%

Next meeting: 2014.02.06

3. BOE (Bank Of Englank):

Interest rate: 0.50%

Next meeting: 2014.02.06

4. SNB (Swiss National Bank):

Interest rate: 0.00%

Next meeting: 2014.03.20

5. RBA (Reverse Bank Of Australia):

Interest rate: 2.50%

Next meeting: 2014.02.14

6. BOC (Bank Of Canada):

Interest rate: 1.00%

Next meeting: 2014.01.22

7. RBNZ (Reserve Bank Of New Zea Land):

Interest rate: 2.50%

Next meeting: 2014.01.29

8. BOJ (Bank Of Japan):

Interest rate: 0.10%

Next meeting: 2014.01.22

AUD mixed USD

 

Signalsgowin.com–The Australian dollar traded mixed against U.S. dollar after the rise in Australia’s housing market demand was better than expected.

The new home loans granted for owner-occupied homes rose by 1.1%.

The number of jobs showed a decline of 0.07% in December.  

AUDUSD traded at 0.8989, down 0.08%; USDJPY traded at 104.01 down 0.16%; NZDUSD was down 0.22% at 0.8285; EURUSD rose to 1.3667, down 0.01%; USDCHF was down 0.02% at 0.9022; USDCAD rose 0.11% to 1.0905.

The U.S. dollar index was up at 80.75.

GLOBAL CURRENCIES MARKET-WEEKLY OUTLOOK: JANUARY 13-17, 2014

signalsgowin.com-The dollar fell against the other main currencies as the U.S. economy added 74,000 jobs in January, the fewest jobs in three years, the Federal Reserve would cut its stimulus program, by USD10 billion in December (reducing it to USD75 billion-a-month); the unemployment rate fell 6.7% from 7% in November (a five year low). 

EURUSD rose to 1.3686, gained 0.29%.

USDJPY fell to 103.95, gained 0.65%.

USDCHF touched 0.9006, gained 0.49%.

Canada’s economy shed 45,900 jobs, the unemployment rate rose to 7.2%, USDCAD rose 1.0945, gained 0.47%; speculators have been aggressively shorting the Canadian dollar, gross shorts have risen to 91,000 contracts, up 4,915 from the previous week.

Net long Euro positions were cut in half, falling from 30,600 contracts to 14,500. 

The net short Yen position of 129,000 contracts is the smallest since late November.

In the coming days investors are to watch U.S. data on retail sales, inflation, consumer sentiment and speeches by Federal Reserve Bank of Philadelphia President Charles Plosser and Dallas Fed President Richard Fisher on Tuesday, U.K. data on retail sales and inflation will also be in focus.

2014.01.13, Monday:

. Australia is to publish data of new home loans granted.

. The Bank of Canada is to release its quarterly business outlook survey.

. New Zealand is to release private sector data on business confidence.

2014.01.14, Tuesday:

. Japan is to produce data on the current account.

. The U.K. is to release data on consumer price inflation.

. The Euro zone is to publish data on industrial production.

. The U.S. is to produce data on retail sales, the government measure of consumer spending, and is to release data on import prices, business inventories.

. Federal Reserve Bank of Philadelphia President Charles Plosser and Dallas Fed President Richard Fisher are to speak.

2014.01.15, Wednesday:

. Australia is to publish data on new vehicle sales.

. Switzerland is to produce data on retail sales.

. The U.S. is to release data on producer price inflation, a report on manufacturing activity in the New York region.

2014.01.16, Thursday:

. Japan is to release data on core machinery orders and tertiary industry activity.

. Australia is to publish data on the change employed and the unemployment rates.

. The Euro zone is to release data on consumer inflation.

. Spain is to hold an auction of 10-year sovereign bonds.

. Canada is to release data on foreign securities purchases.

. The U.S. is to publish reports on consumer price inflation, initial jobless claims, data on manufacturing activity in Philadelphia; Federal Reserve Chairman Ben Bernanke is to speak at an event in Washington.

2014.01.17, Friday:

. Switzerland is to publish data on producer price inflation.

. The U.K. is to release data on retail sales.

. The U.S is to release data on building permits, housing starts and industrial production.

DOLLAR REMAINS LOWER AFTER US JOBS REPORT

signalsgowin.com-The dollar remained mostly lower against the other major currencies after the U.S. economy added far less jobs than expected. Dollar remains lower, dropped against the yen, USDJPY down 0.64% to 104.17. Economy added 74,000 jobs in December, compared to expectations for a 196,000 increase, after 241,000 rise the previous month. The U.S. unemployment rate fell to 6.7% in December, from 7.0% in November. The euro was higher against the dollar, EURUSD up 0.50% to 1.3676, the industrial production in France climbed 1.3% in November, exceeding expectations for a 0.4% rise after European Central Bank President Mario Draghi said the bank was still ready to take "further decisive action" if needed. The pound steady against the dollar, GBPUSD easing up 0.07% to 1.6492, the U.K. manufacturing production was flat in November. The dollar was lower against the Swiss franc, USDCHF sliding 0.56% to 0.9018, the consumer price inflation fell 0.2% in December. AUDUSD gaining 0.88% to 0.8977, NZDUSD advancing 0.36% to 0.8282 and USDCAD climbing 0.73% to 1.0921. The number of employed people in Canada dropped by 45,900 in December, Canada's unemployment rate rose to 7.2% last month. China's trade surplus narrowed to USD25.6 billion in December. The U.S. dollar index was down 0.41% to 80.74.

AUDUSD DOWN DUE TO AUSTRALIAN RETAIL TRADE DATA

signalsgowin.com–The Australian dollar fell against the U.S. dollar after a better than expected retail trade data announced. The November retail sales rose by 0.7%, the departmental store sales declined 2.0%, cafes, restaurants and takeaways food services sales grew 1.1%. The November building approvals in Australia, which fell by 1.5%, the private house approvals in November rose by 6.0%, the value of the buildings approved rose by 2.3%. China’s consumer prices for December rose 2.5%, in November the prices rose 3.0%. The producer prices were down 1.4%. Japanese consumer sentiment worsened in December, the consumer sentiment diffusion index fell 0.9 points to -9.2. AUDUSD traded at 0.8873, down 0.29%, USD/JPY traded at 104.90 up 0.05%, NZD/USD down 0.23% at 0.8246, EUR/USD down 0.01% at 1.3573. The dollar firmed after payroll processor ADP reported that private-sector nonfarm payrolls rose by 238,000 in December. The numbers fueled hopes that the official December jobs report due out on Friday will meet or beat expectations as well. The FED decided the fate of its USD75 billion bond-buying program, Wednesday's data fueled expectations for the U.S. central bank to scale down purchases even further this year. FED bond purchases aim to prop up the economy by suppressing long-term borrowing costs, weakening the dollar as a side effect as long as they remain in effect. The FED released the minutes of its December policy meeting that revealed most monetary authorities felt January was the right time to trim its monthly bond-buying program to USD75 billion from USD85 billion.

WHAT MAKES TRADERS NERVOUS FOR THE YEAR 2014

2014 is supposed to be a good year for the U.S. economy and despite the drop in the ISM manufacturing index, recent economic data has been consistent with a continued recovery in the U.S. economy. An improving economy also means the Federal Reserve will continue its course of tapering asset purchases which will lead to higher borrowing costs for consumers and businesses. 

2013 was a great year for the stock market but higher rates increases the cost of doing business, which should be negative for stocks but we have yet to see a meaningful correction. Therefore it is not unusual to see selling in equities especially with thin liquidity. This sell-off spilled over into the forex market, driving the dollar higher and risk currencies lower. The drop in U.S. 10-year yields also confirms that risk aversion is driving price action across the financial markets.

The Chinese economy is slowing, posing a risk to the countries that are dependent on China for growth. The slowdown in China will make U.S. assets more attractive this year. Over the past decade, money has flowed out of Western into developing nations in seek of greater growth opportunities. While China will still grow at a faster pace than the U.S. in 2014, the slowdown in momentum will make investors nervous about leaving their money parked in the East and wary about missing out on opportunities in the West. As such, the slowdown in Chinese manufacturing activity is contributing to the sell-off that we are seeing Thursday in equities and currencies. Among developed nations, Australia is one of the countries hit the hardest by slower Chinese growth and we are beginning to see evidence of that in last night's PMI report which showed manufacturing activity slowing for the second month in a row.

In contrast the U.S. is outperforming the market's expectations. While the ISM manufacturing index dropped from 57.3 to 57.0 in the month of December, economists had been looking for a steeper decline to 56.8. Strong gains were seen in employment and new orders. Construction spending also beat expectations, rising 1.0% in November from an upwardly revised 0.9%. The jobless claims forecast was for a rise to 344k but instead, claims dropped to 339k from 341k. These reports indicate that the U.S. remains on track for a stronger recovery in 2014.

There are no major U.S. economic reports scheduled for release Friday but a number of Federal Reserve officials will be speaking. Bernanke, Plosser, Lacker and Stein are expected to share their views on the economy. Lacker is a non-voter but Plosser and Stein are voting members of the FOMC this year and they generally lean towards hawkishness.

EUR: Potential Triple Top?

The euro sold off sharply against the U.S. dollar Thursday, leaving investors wondering about whether the currency pair has officially carved out a triple top. From a fundamental perspective, uneven Eurozone data and the dovish bias of the European Central Bank are two big reasons why we expect the euro to underperform the dollar this year. According to the final Eurozone PMI numbers released this morning, manufacturing activity in the region expanded for the 6th month in a row. While it may be encouraging to see manufacturing activity expand in the Eurozone and its largest economy Germany, weakness in France raises concerns about how optimistic the central bank can be when the second largest economy continues to slow. Italy and Greece also saw improvements but with a more than 26% unemployment rate in Spain, there is still widespread weakness in the region. The Eurozone is expected to grow this year but the 1.1% projected growth rate pales in comparison to the 3% growth expected for the U.S. this year. From a technical perspective, the EUR/USD failed at a very important resistance level last year. Over the past 2 months, EUR/USD tried to close above 1.3830, the 61.8% Fibonacci retracement of the sell-off that lasted between 2011 and 2012 but failed to do so. However in order for the rejection of 1.38 to become an official triple top, EUR/USD would need to close below the December 20 low of 1.3625 and ideally below 1.3600. With no Eurozone data on the calendar Friday, we are not looking for any big moves in EUR/USD but next week the European Central Bank has a monetary policy announcement that could be the catalyst for a downside break.

GBP: Backs Off Fresh 2-Years Highs on Surprise Decline in PMI Manufacturing 

After hitting a fresh 2-year high before the European open, the British pound traded lower against the U.S. dollar throughout the North American session and was actually one of the days worst performing currencies. Given the overall strength of the U.K. economy, the decline in manufacturing growth in the U.K. caught many traders by surprise. Analysts were looking for another improvement especially since a similar survey conducted by the Confederation of British Industry showed a significant uptick in manufacturing activity. Nonetheless the more closely followed factory activity report from Markit Economics dropped to 57.3 from 58.1 in December. On New Years Day Prime Minister Cameron called the U.K. recovery fragile and while Thursday's drop in PMI reinforces this view and drove sterling sharply lower, the details of the report were not nearly as worrisome because employment, new orders and new export orders continued to grow. The selling of British pounds did not gain momentum until the losses started to add up in U.S. stocks. How GBP/USD trades around the 1.6430 level is key because this level is the 38.2% Fibonacci retracement of the 2007 to 2009 sell-off. If the currency pair fails to hold this level, then the near term losses could extend below 1.63 but as long as the pair remains above 1.62, the uptrend is intact. The U.K. is one of the few countries with economic data scheduled for release on Friday. The focus will be on the housing market will Nationwide house prices, the PMI construction index, consumer credit and mortgage approvals on the calendar.

AUD: Beware of a Short Squeeze

While European currencies sold off against the greenback, the commodity currencies traded higher which is surprising given the weakness in regional data and risk aversion. For the past few months, we have seen the AUD and NZD ignore its high beta status and trade purely on the outlook for China and Australia. What makes Thursday's price action interesting was the fact that AUD and NZD rallied despite weaker Australian and Chinese data. According to the latest reports, manufacturing activity slowed in both countries during the month of December. In Australia, the manufacturing sector contracted for the 28th out of the last 30 months with the PMI index dropping from 47.7 to 47.6. In China, the HSBC flash PMI index dropped to 50.5 from 50.8 the previous month. Both AUD and NZD traded lower on the back of these reports but recovered all of their losses during the North American session on the back of higher gold prices. Oil prices on the other hand dropped more than 2% but the impact on the Canadian dollar was nominal. China's non-manufacturing PMI index was scheduled for release Thursday night and was expected to confirm that the Chinese economy is slowing. Among the developed nations, Australia is expected to be one of the countries hit the hardest by slower Chinese growth. Yet it is also important to keep positioning in mind because with traders holding a significant amount of short positions, a short squeeze can drive AUD/USD higher even though the outlook calls for a weaker currency. 90 cents is the key level to watch in AUD/USD.

USD/JPY Slips Below 105 on Lower US Yields and Risk Aversion

With Japanese markets closed on Thursday and Friday, the Yen traded purely on risk appetite. USD/JPY hit a fresh 5-year high of 105.44 before the North American open but ended the day below the key 105 level. Taking a look at the charts, as long as USD/JPY holds above 104, the uptrend remains intact. GBP/JPY and CHF/JPY saw the steepest losses Thursday as the surprise slowdown in manufacturing activity drives sterling lower. The decline in 10-year U.S. bond yields also weighed on USD/JPY but with U.S. rates headed higher this year, we view the pullback as temporary. One of the biggest risks for Japan this year is a higher consumption tax in April. The last time a politician in Japan dared to raise taxes was in April 1997 and the increase plunged the economy into recession and later deflation. In the months leading up to the tax increase, the economy grew rapidly with Q4 GDP growth in 1996 hitting a high of 6.1%. Growth remained strong in the first quarter of Q1, with GDP rising 3%. During this time, USD/JPY rose 10% after rising 4.5% in the last quarter of the year before the rate hike. USD/JPY collapsed once taxes were increased because the economy contracted 3.8% the quarter that taxes were raised but taxes won't be increased for another 3 months. In the near term the focus will be on how much consumers will spend leading up to the tax hike.

Kathy Lien, Managing Director of FX Strategy for BK Asset Management.