Forex

On Market Pulse, Dean writes, "Draghi and his fellow cohorts at the ECB have finally decided to throw everything at beating back Europe's twin threats of 'deflation' and 'growth' problems." In the press conference today, Draghi announced intent to purchase Asset Backed Securities and cut the benchmark rate to 0.15%.  Poppelwell notes that "the ECB seems to be going for broke. In reality, what's likely to work will be the ABS purchases, but before it can, that market needs to get bigger (more structured and more liquid) as they are really only in the prepping stage. The ECB needs to buy "big" to make any meaningful impact."

Read the original article at Forex News

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The other day Trade Leader Alex Kazmarck offered his thoughts on GBP/USD, suggesting the pound was probably due for a retracement in the near future. While I don’t disagree with his view on cable, in light of the comments from Bank of England boss Carney last week as to the timing of eventual rate hikes by the central bank, it’s is worth taking a broader view of sterling. I start with EUR/GBP.

The thing which stands out for me on the weekly chart below is the recent turn up in the width of the Bollinger Bands. The Bands have gotten extremely narrow of late – more narrow than at any point in the last several years, as can be seen in the relative width line at the bottom of the chart. That is a set up for a market to see a rapid increase in volatility, usually as the result of a new trend.

jf20a

Of specific interest to us right now where EUR/GBP is concerned is the way the Band Width has increased on the recent break of 0.8150. This tends to indicate confirmation of the move, suggesting we are at the outset of a new leg lower in the cross’s move down from last year’s peaks. With the market getting into the high trading density area down to about 0.8000, it would be no problem at all to imagine it slipping toward that latter level.

We also have an extremely narrow Band situation on the GBP/JPY. Here too the Bands have gotten more relatively narrow than has been the case at any point over the last several years. In this case, however, we haven’t year seen them start to widen out, which make sense since there hasn’t been any kind of range break yet.

jf20b

Supportive of GBP/JPY moving higher again eventually is the price pattern. It has the look of a bull flag or pennant, both of which are generally seen as positive continuation patterns. This is generally supported by the fact that more of the trading has been toward the upper end of the consolidation area than the lower, indicating stronger buying pressure. There is also a modest bullish seasonal pattern to the cross this time of year.

Switching to GBP/AUD, we have a similar if slightly different scenario. Here the Bollingers have also gotten narrow, though not to the historical levels seen in the earlier crosses. A look at the price pattern on the weekly chart shows us shorter periods of consolidation, and in fact a recent break down from the one either side of about 1.85 that happened earlier this year.

jf20c

Still, we do have relatively narrow Bands that are starting to widen out once more, as in the case of EUR/GBP. This is a potentially negative situation for sterling, as said expansion in the Bands is coming in conjunction with weakness in the cross. We have what is looking like a potential failed rally following the break down from the earlier consolidation, creating a lower high, lower low situation. The one positive element is the proximity of the highs from mid-2013 to act as support. They are not very far below the recent lows.

What that leaves us with is a key range for GBP/AUD of about 1.75 to 1.83. I think the way the market breaks from here will tell us the direction of the next major move.

So we have is a situation where the pound looks like it could yet make further gains against the euro and the yen, but might be set to lose ground against the Aussie. That fits a scenario where the markets perceive the latter to potentially benefit from a stronger global economy, but the former two to continue to lag because of lingering internal economic issues. Sterling thus occupies a middle ground.

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Trade Leader Or Kahana presents analysis of the GBP/USD.

GBPUSD may create a bullish daily Zero Line Reject (ZLR) in Woodie's CCI. When the markets will open, a ZLR wouldn't be confirmed since the last daily candlestick closed with a shadow. There are many economic figures this week for GBP, so its pairs and crosses will probably make an aggressive movement. When a daily ZLR is affirmed (might look like the drawing in the right picture), I will search for an entry on shorter time frames.

GBP-17-5-ZLR-D1

On February 20, 2014 I wrote a post regarding GBPUSD possible strength due to a Bullish Right Triangle in the monthly chart. A confirmed trend on the monthly chart lasts months and even years, with deep corrections along the way. Whenever I see a strong pattern in the monthly chart I will look for a pattern in other time frames using my indicators and graphic patterns to join the trend.

When looking on GBPUSD daily chart, one may see the Woodie's CCI might provide us with the perfect entry for joining the monthly uptrend. This potential ZLR is nicely shaped; the 50CCI is quite close to the zero line, while the 6TCCI is in the -100 area, both bounds sharply in a V-shape.

Whoever wants to avoid the bearish corrections should look for a bullish pattern on the shorter time frames, using indicators or graphic patterns. I would use the hourly chart. Observing the hourly chart, I see a big bullish candlestick followed by many small bearish candlesticks, which indicate that the bears are weaker than the bulls. I would wait for an hourly bullish ZLR in the Woodie's CCI to join the bulls.

At the recent FOMC meeting we got another announcement from the Federal Reserve that it would again taper back again the amount of Treasury debt it was purchasing each month – the fourth such move. We also got word that the central bank expects to keep paring back its QE purchases in the face of an improving US economic outlook, which has market participants anticipating that the $45bln in monthly asset purchases still in place will be wound completely down as 2014 progresses.

So what do the markets think of all this? Well, not very much really. As can be seen from the daily chart of US 10yr yields below, rates actually took a bit of a tumble in the days following the FOMC meeting, though they have largely recovered recently.

Daily chart, US 10 year yields - click to enlarge

One would normally expect Treasury yields to be at least looking like they wanted to move higher in the face of an improving economy and the steady reduction in purchases by the Fed. Instead, however, we’ve had a couple of months of the market going basically nowhere. This is, in fact, part of a broader consolidation in rates which dates back to the middle of 2013 on the heels of the big rally up from the 2012 lows.

Weekly US 10 year yields chart - click to enlarge

It’s worth making note of how narrow the Bollinger Bands have gotten of late. As the lower plot in the chart above shows, the Band Width relative to the middle Band (20-period average) is basically in line with its low readings from about this time in 2010 and 2011. In both cases the eventual market moves which followed were substantial. If anything, this current consolidation is even more intense than those proceeding ones, which could be setting the market up for some really serious trending action in the months ahead.

First, of course, the range needs to be broken. The Bollingers don’t help much in the way of indicating which way things eventually resolve. The chart, however, does provide some help. We still have a higher high, higher low situation in the weekly timeframe. This generally biases things to the upside. If yields can push back above 2.80% it would establish yet a higher high in the pattern, which would be a further positive indication.

Admittedly, however, the recent action does have a bearish bias to it. Were the market to drop below 2.450% it would represent both a key support break and a widening of the Bollingers. That would be a decidedly negative indication – or at least the set-up for a nasty head fake by the market.

Trade Leader Alex Kazmarck of SpotEuro presents forex market analysis.

Update

Euro top at 1.40 seems to be the magic number. Today, ECB President Draghi signaled during the Q & A part of the press conference that if inflation continues to come in at such low figures, the ECB is comfortable acting in June, sending the euro plummeting 100 pips. While we’ve seen the euro bounce back several times over the past few months, today’s price action is pointing to a more fundamental shift in policy. He also verbally intervened in the euro’s high exchange rate, saying that it plays a very large role in inflation figures and that something may have to be done   about it. Very important to keep an eye on June staff projections and inflation figures during the next few weeks.

Ukraine situation has recently been given a helping hand as Russian President Putin asked the Eastern Ukrainian population to hold off on the May 11th referendum; however, it seems the vote will go on anyways and I’m cautious at this temporary relief rally that we’ve seen in equities.

I continue to be bullish on the USD and today’s bounce in the Dollar index seems to have made clear that the bottom lies at the 79 level. Still, today’s markets are very dynamic, with many moving parts. Short term positions could see more volatility in the near term.

Technicals

Some charts to keep in mind during the next few weeks. Presented with little commentary.

EURUSD Daily

eurusd

GBPNZD Daily

GBPNZD

EURCAD Daily

EURCAD

Conclusion

While certain strategies could work very well in this market, specifically longer-term fundamentally driven, it’s been difficult to hold on to certain shorter term ideas. I think there are a lot of risks that have not been accurately priced in that are currently reflected in today’s record low European bond yields (Italy). While there could be a lot of volatility ahead of us, I think the opportunity lies in the US Dollar, not only for safe haven reasons, but more fundamentally in the economic recovery, which may or may not hold. It should be a win-win situation as a safe haven play and as a recovery play.

EUR/USD

Resistance: 1.3995

Support: 1.3810; 1.3700; 1.3500

On the WSJ, Veronica Dagher dives into target-date funds. It turns out that there are many different approaches to building a target date fund, and therefore funds with the same target year may have widely divergent results in any given year. Exposure to equities, for example, drive most target date funds' success this least year, but that might not be so next year.

"Investors should keep in mind that an asset class that is a drag in one year could fuel a fund's performance in the next. Investors shouldn't count on stocks performing as well this year as they did in 2013. Hence, people may want to scale back expectations for equity-heavy target-date funds, watchers say. So far this year, there haven't been big spreads between the best- and worst-performing target funds."

Read the original article at online.wsj.com