Weekly Outlook: 2014, July 13 - 20

Forex Weekly Outlook July 14-18

The yen managed to gain some ground in a week that saw some fear return to the markets. What’s next for currencies? Public appearances from Yellen, Draghi and Carney, rate decisions in Japan and Canada and plenty of important US figures are the highlights of a busy week. Market movers on our calendar for this week. Here is an outlook on the major events to change Forex trading.

Last week FOMC Meeting Minutes release showed that the Fed is finally moving towards preparing the markets for monetary normalization. The Fed is on course to end QE in October 2014, with a larger tapering of $15 billion. However there wasn’t any clear indication regarding the possible timeline for a rate hike. In the euro-zone, we had a flashback from the dark days of the debt crisis, with fresh worries from Portugal. The pound was capped amid some weak UK data. And both in Australia and in Canada, employment data weighed on the local currencies. Let’s start:

1. Mario Draghi speaks: Monday, 17:00. ECB President Mario Draghi is expected to testify before the Committee on Economic and Monetary Affairs of the European Parliament, in Strasbourg. He may talk on the ongoing weak inflation, despite the ECB’s recent moves. Volatility is expected, especially if Draghi refers to the exchange rate of the euro and to the probability of QE, a topic which is high on the agenda of policymakers.
2. Japan rate decision: Tuesday. The Bank of Japan decided to keep monetary policy unchanged on its June meeting, pledging to increase monetary base at annual pace of 60-70 trillion yen. The central bank noted the economy is progressing at a moderate pace in line with expectations and revised up its outlook on overseas economies in light of a progress in industrial output.
3. UK inflation data: Tuesday, 8:30. Inflation in the UK declined in May to a four and a half year low of 1.5%, following 1.8% in posted in April. Lower flight rates and food prices pushed inflation down. Inflation remained below the BOE’s 2% target for the sixth month. However prices still increase faster than average earnings influencing consumer spending. CPI is expected to reach 1.6%.
4. Mark Carney speaks: Tuesday, 9:00. BOE Governor Mark Carney will speak about the Financial Stability in London. We have seen his strong influence on markets by talking about a rate hike at first and then saying the comments were his personal views.
5. German ZEW Economic Sentiment: Tuesday, 9:00 Investor sentiment continued to decline in June reaching the lowest level in 18 months, down 3.3 points to 29.8. Economists expected the index to reach 35.2. This was the sixth consecutive fall indicating a grim outlook for economic growth unlike the 5.6 points rise to 67.7 for current economic conditions. However the ZEW survey can be volatile. German sentiment is expected to rise to 33.4.
6. US retail sales: Tuesday, 12:30. U.S. retail sales gained 0.3% in May, less than the 0.5% rise projected by analysts, following a 0.5% increase in the previous month. However the positive growth trend in the US employment market leaves less room for concern. Meanwhile core sales, excluding autos increased 0.1% in May after a 0.4% increase in the previous month. Retail sales are expected to rise 0.6%.
7. Janet Yellen speaks: Tuesday, 14:00. Federal Reserve Chair Janet Yellen will testify before the US Senate in Washington DC. Important issues may be raised such as the final taper decision, inflation situation and rate hike schedule. According to a top Fed watcher in the WSJ, the time may be ripe for Yellen and her colleagues to acknowledge the improvement in the US economy, especially as the Fed’s favorite job figure is clearly on the rise.
8. UK employment data: Wednesday: 8:30. The number of people filing claims for unemployment benefits in the U.K dropped more than expected in May, falling by a seasonally adjusted 27,400, while the unemployment rate plunged to 6.6% from 6.8% in April. Analysts expected jobless claims to reach 25,000 and unemployment rate to 6.7%. Meanwhile, the average earnings index edged up by a seasonally adjusted 0.7% in the three months to April, less than the 1.2% increase projected, after rising by 1.9% in the three months to March. The number of Jobless people is expected to decline by 27,100 and the unemployment rate is expected to remain 6.6%
9. US PPI : Wednesday, 12:30. Producer prices in the U.S. fell unexpectedly in May by 0.2%, confirming that inflation is mild. Chipper food and gas pushed PPI down after two strong climbs raising hopes for higher inflation figures. In the last 12 months, producer prices increased 2%, in line with the Federal Reserve’s inflation target following 2.1% in April. Core PPI, excluding food and energy products, remained unchanged in May. Producer prices are expected to rise to 0.4%.
10. Canadian rate decision: Wednesday, 14:00. The Bank of Canada maintained its overnight rate at 1%. Inflation moved closer to the central bank’s target of 2%. The Canadian economy grew at a modest rate in the first quarter, troubled by by severe weather and supply constraints. However lower Canadian dollar and a rising foreign demand are expected to boost exports. Improved corporate profits, especially in exchange rate-sensitive sectors, should also support higher business investment in the coming quarters. The next change in monetary policy will depend on new information and its influence on the balance of risks. The BOC may be somewhat more dovish after the disappointing employment numbers.
11. US Building Permits: Thursday, 12:30. The number of building permits issued in the U.S. declined more-than-expected in May, falling 6.4% to a seasonally adjusted 991,000 units. Analysts expected a rise to 1.07 million units. Meanwhile, housing starts declined 6.5% to a seasonally adjusted 1.001 million units from April’s total of 1.071 million, worse than the 3.7% drop predicted by analysts. The number of building permits is expected to reach 1.04 million this time.
12. US Unemployment Claims: Thursday, 12:30. Initial jobless claims fell by 11,000 last week reaching 304,000, well below estimates of a 315,000 rise. The reading brought unemployment claims near to a seven-year low of 298,000. The four-week moving average, fell to 311,500, lower by 3,500 from the unrevised average of 315,000 in the previous week. The number of jobless claims is expected to rise by 310,000.
13. US Philly Fed Manufacturing Index: Thursday, 14:00. The manufacturing sector around the Philadelphia region edged up in June, reaching 17.8, above May’s reading of 15.4. Economists expected the survey to reach 14.3. This was the fourth consecutive month in positive territory and the strongest figure since September. New orders expanded by 6 points to 16.8, new shipments increased to 15.5, following 14.2 in May and the employment index also edged up to 11.9, from May’s reading of 7.8. The positive shifts suggest the US manufacturing sector is picking up. The manufacturing sector in the Philadelphia area is expected to decline to 15.6.
14. US UoM Consumer Sentiment: Friday, 13:55. U.S. consumer sentiment declined in June to 81.2 down from 81.9 posted in May, but the lower figure does not necessarily suggests a downside trend. Consumers were positive regarding the past six months. Current economic conditions edged up to 95.4 from 94.5 and was below a forecast of 95.7 and consumer expectations declined to 72.2 from 73.7, and missed an expected 74.6. Consumer sentiment is expected to rise to 83.5.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

Forex Weekly Outlook July 14-18

The yen managed to gain some ground in a week that saw some fear return to the markets. What’s next for currencies? Public appearances from Yellen, Draghi and Carney, rate decisions in Japan and Canada and plenty of important US figures are the highlights of a busy week. Market movers on our calendar for this week. Here is an outlook on the major events to change Forex trading. Last week FOMC Meeting Minutes release showed that the Fed is finally moving towards preparing the markets for monetary normalization. The Fed is on course to end QE in October 2014, with a larger tapering of $15 billion. However there wasn’t any clear indication regarding the possible timeline for a rate hike. In the euro-zone, we had a flashback from the dark days of the debt crisis, with fresh worries from Portugal. The pound was capped amid some weak UK data. And both in Australia and in Canada, employment data weighed on the local currencies. Let’s start:
Updates:

1. Mario Draghi speaks: Monday, 17:00. ECB President Mario Draghi is expected to testify before the Committee on Economic and Monetary Affairs of the European Parliament, in Strasbourg. He may talk on the ongoing weak inflation, despite the ECB’s recent moves. Volatility is expected, especially if Draghi refers to the exchange rate of the euro and to the probability of QE, a topic which is high on the agenda of policymakers.
2. Japan rate decision: Tuesday. The Bank of Japan decided to keep monetary policy unchanged on its June meeting, pledging to increase monetary base at annual pace of 60-70 trillion yen. The central bank noted the economy is progressing at a moderate pace in line with expectations and revised up its outlook on overseas economies in light of a progress in industrial output.
3. UK inflation data: Tuesday, 8:30. Inflation in the UK declined in May to a four and a half year low of 1.5%, following 1.8% in posted in April. Lower flight rates and food prices pushed inflation down. Inflation remained below the BOE’s 2% target for the sixth month. However prices still increase faster than average earnings influencing consumer spending. CPI is expected to reach 1.6%.
4. Mark Carney speaks: Tuesday, 9:00. BOE Governor Mark Carney will speak about the Financial Stability in London. We have seen his strong influence on markets by talking about a rate hike at first and then saying the comments were his personal views.
5. German ZEW Economic Sentiment: Tuesday, 9:00 Investor sentiment continued to decline in June reaching the lowest level in 18 months, down 3.3 points to 29.8. Economists expected the index to reach 35.2. This was the sixth consecutive fall indicating a grim outlook for economic growth unlike the 5.6 points rise to 67.7 for current economic conditions. However the ZEW survey can be volatile. German sentiment is expected to rise to 33.4.
6. US retail sales: Tuesday, 12:30. U.S. retail sales gained 0.3% in May, less than the 0.5% rise projected by analysts, following a 0.5% increase in the previous month. However the positive growth trend in the US employment market leaves less room for concern. Meanwhile core sales, excluding autos increased 0.1% in May after a 0.4% increase in the previous month. Retail sales are expected to rise 0.6%.
7. Janet Yellen speaks: Tuesday, 14:00. Federal Reserve Chair Janet Yellen will testify before the US Senate in Washington DC. Important issues may be raised such as the final taper decision, inflation situation and rate hike schedule. According to a top Fed watcher in the WSJ, the time may be ripe for Yellen and her colleagues to acknowledge the improvement in the US economy, especially as the Fed’s favorite job figure is clearly on the rise.
8. UK employment data: Wednesday: 8:30. The number of people filing claims for unemployment benefits in the U.K dropped more than expected in May, falling by a seasonally adjusted 27,400, while the unemployment rate plunged to 6.6% from 6.8% in April. Analysts expected jobless claims to reach 25,000 and unemployment rate to 6.7%. Meanwhile, the average earnings index edged up by a seasonally adjusted 0.7% in the three months to April, less than the 1.2% increase projected, after rising by 1.9% in the three months to March. The number of Jobless people is expected to decline by 27,100 and the unemployment rate is expected to remain 6.6%
9. US PPI : Wednesday, 12:30. Producer prices in the U.S. fell unexpectedly in May by 0.2%, confirming that inflation is mild. Chipper food and gas pushed PPI down after two strong climbs raising hopes for higher inflation figures. In the last 12 months, producer prices increased 2%, in line with the Federal Reserve’s inflation target following 2.1% in April. Core PPI, excluding food and energy products, remained unchanged in May. Producer prices are expected to rise to 0.4%.
10. Canadian rate decision: Wednesday, 14:00. The Bank of Canada maintained its overnight rate at 1%. Inflation moved closer to the central bank’s target of 2%. The Canadian economy grew at a modest rate in the first quarter, troubled by by severe weather and supply constraints. However lower Canadian dollar and a rising foreign demand are expected to boost exports. Improved corporate profits, especially in exchange rate-sensitive sectors, should also support higher business investment in the coming quarters. The next change in monetary policy will depend on new information and its influence on the balance of risks. The BOC may be somewhat more dovish after the disappointing employment numbers.
11. US Building Permits: Thursday, 12:30. The number of building permits issued in the U.S. declined more-than-expected in May, falling 6.4% to a seasonally adjusted 991,000 units. Analysts expected a rise to 1.07 million units. Meanwhile, housing starts declined 6.5% to a seasonally adjusted 1.001 million units from April’s total of 1.071 million, worse than the 3.7% drop predicted by analysts. The number of building permits is expected to reach 1.04 million this time.
12. US Unemployment Claims: Thursday, 12:30. Initial jobless claims fell by 11,000 last week reaching 304,000, well below estimates of a 315,000 rise. The reading brought unemployment claims near to a seven-year low of 298,000. The four-week moving average, fell to 311,500, lower by 3,500 from the unrevised average of 315,000 in the previous week. The number of jobless claims is expected to rise by 310,000.
13. US Philly Fed Manufacturing Index: Thursday, 14:00. The manufacturing sector around the Philadelphia region edged up in June, reaching 17.8, above May’s reading of 15.4. Economists expected the survey to reach 14.3. This was the fourth consecutive month in positive territory and the strongest figure since September. New orders expanded by 6 points to 16.8, new shipments increased to 15.5, following 14.2 in May and the employment index also edged up to 11.9, from May’s reading of 7.8. The positive shifts suggest the US manufacturing sector is picking up. The manufacturing sector in the Philadelphia area is expected to decline to 15.6.
14. US UoM Consumer Sentiment: Friday, 13:55. U.S. consumer sentiment declined in June to 81.2 down from 81.9 posted in May, but the lower figure does not necessarily suggests a downside trend. Consumers were positive regarding the past six months. Current economic conditions edged up to 95.4 from 94.5 and was below a forecast of 95.7 and consumer expectations declined to 72.2 from 73.7, and missed an expected 74.6. Consumer sentiment is expected to rise to 83.5.

It was a rocky week for the stock market as the drop in the momentum stocks Tuesday caught many by surprise. The social media stocks bore the brunt of the selling with large drops in Twitter, Inc. (TWTR) and Facebook, Inc. (FB).

The market’s rebound Wednesday was followed by even heavier selling on Thursday’s opening but the major averages did close well off the day’s lows. The action last week appears to have been accompanied by a change in sentiment from the financial media.

In April and May, as well as during June’s impressive rally, the dominant opinion from the financial TV networks was that stocks were overvalued and could not go higher. There seemed to be a shift last week as the weakness in the stock market was often discussed as a buying opportunity.

What to Watch

The stock market roared into the Fourth of July weekend, but last week, some chinks in the stock market’s armor did appear. The recent increase in bullish sentiment has been accompanied by some signs of technical deterioration, which are noted below.

This means that we are likely in the process of building a short-term top. I do not expect the market to drop sharply over the near term, but if it did, that would actually be a positive as it could create an oversold extreme. A more likely scenario is that we will see another rally phase and marginal new highs cannot be ruled out.

This would give the technical indicators and their WMA more time to flatten out before they start to roll over. On the downside, the S&P 500 could drop down to the 1890-1910 level, which is just over 3% below current levels and the quarterly pivot at 1914.

Those stocks with weak relative performance analysis are likely to be the most vulnerable. I do not see enough risk for investors in the well-diversified large-cap ETFs I recommended in A Portfolio That Won’t Ruin Your Summer to change their strategy.

For those in individual stocks, they should be looking to reduce their exposure. I took some profits in Alcoa, Inc. (AA) last week after its earnings as it now seems to be on everyone’s buy list. I will be reviewing the Charts in Play portfolio next week.

The bullish percentage for the AAII did not change much last week as it was down less than 1%. The bearish percentage rose 6% as those in the neutral category apparently turned bearish.

The five-day MA of the % of S&P 500 stocks above their 50-day MAs has dropped down to 76.1% and—as the chart indicates (see circle)—is looking more toppy. And one standard deviation above the mean at 64.7% is definitely in a higher-risk area.

The uptrend, line a, is now in the 57% area but a drop down to the 50% level would not be surprising.
The daily NYSE Composite (NYA) will close the week below its 20-day EMA for the first time since late May. The daily uptrend, line b, was tested last Thursday.

A daily close above last Thursday’s high at 10.962 should be enough to stabilize the chart. There is strong resistance in the 11,050-11,105 area with the monthly projected pivot resistance at 11,207.

The former resistance (line a) now becomes first support in the 10,800-850 area with the quarterly pivot 10,758.
The weekly NYSE Advanced/Decline did confirm the recent highs and this is a bullish sign for the intermediate-term. The daily A/D line made a new high in early July but closed the week below its still-rising WMA. This makes the strength of the A/D ratios important on any rally this week. It is still well above the uptrend, line c.

The McClellan Oscillator dropped sharply last Monday as the support from the June lows was broken. At -147 it is slightly oversold. At the February lows it was -198 but at more important levels it can drop as low as -300

S&P 500

The Spyder Trust (SPY) spiked to a high of $198.29 on July 3 before dropping to $195.06 at Thursday’s early low. This is now short-term support with the monthly pivot at $194.42, which corresponds to the uptrend, line a.

The quarterly pivot is significantly lower at $191.24 with the April high and the 38.2% Fibonacci support at $188.80 and $188.35 respectively.

On the upside, near-term resistance at $197.30, which if overcome, could trigger a move to new highs.

Nasdaq 100

The PowerShares QQQ Trust (QQQ) had a classic test of the upper boundary of its trading channel (line a) before the recent pullback. So far, the 20-day EMA at $93.82 appears to have support with the monthly pivot at $92.82 (courtesy of John Person‘s software). The monthly projected pivot support is at $91.49.

A close back above $95.40 should signal a move to new highs with the monthly projected pivot resistance at $96.56 with the weekly starc+ band closer to $97.50.

The Nasdaq 100 A/D line surged to new highs at the start of the month but is now slightly below its WMA. There is additional support from the spring lows at line c.

The daily OBV pulled back to its rising WMA last week but did make an impressive new high as the upper trend line was being tested. There is next support at the June lows with the uptrend, line d, much lower.

Russell 2000

The iShares Russell 2000 Index (IWM) has been hit hard since it made an intra-day high of $120.97 on July 1. IWM is already close to the monthly pivot support at $113.64 but looks ready to close the week above the quarterly pivot at $115.05.

The declining 20-day EMA is now at $116.83 with further resistance in the $118-$119 area.
The Russell 2000 A/D never was able to surpass the March highs on the recent rally and has now clearly broken its downtrend. Its WMA is starting to flatten out and a rebound back to its WMA could signal a rally failure.

The daily OBV also did not confirm the highs and is well below its WMA. There is further OBV support at line f.


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US Dollar Ready for Break…But Direction Awaits Volatility or Fed

Fundamental Forecast for Dollar: Neutral

• After a disappointing week for yields – despite robust commentary – rate forecasting will focus on Yellen’s testimony
• Volatility started to move off its historical and seasonal lows last week, but the dollar awaits a true turn

Dollar Index continues to linger conspicuously close to a level that has held the floor on the currency for the past 16 months. Whether the assessment is technical or fundamental, the signs point to a meaningful break for the greenback in the near-term future. However, the direction the market chooses and the commitment to a new trend’s continuity depends on how underlying market conditions evolve and whether the rate forecasts start to solidify.

Perhaps the dollar’s greatest burden moving forward is the maintenance of long-standing complacency in the broader financial markets. Status quo supports the market’s appetite for greater rates of return – even when that pursuit necessitates borrowed funds and greater exposure to fulfill. This all but deflates the currency’s dormant role as a liquidity-centered safe haven currency – an uncontestable position…so long as the market is seeking it out. Furthermore, complacency delays rate expectations for the Fed taking shape across the speculative ranks.

The most capable fundamental catalyst the dollar could face moving forward is a definitive development in risk trends. Yet, here, there is asymmetrical potential. A true and committed swell in speculative appetite that charged high-yield, high-return assets would certainly divert capital from the relatively steady but modest returns in the US. That said, against record use of leverage in the financial system and the premium nearly rung dry from so many of the favored – and even obscure – income assets, it is difficult to inspire a groundswell of risk appetite from current levels. So while it is certainly possible that we meander at exceptionally low market activity levels, the damage from the theme is disproportionate.

Though we seen a number of false dawns before, there was some hope that volatility may be turning a corner this past week. Volatility measures from both the capital and FX markets moved up from their lows. Historically, July sees the biggest average increase in the activity report of any other month – a seasonal shift that can perhaps provoke a turn from the historical depression in these measures. Should market volatility pick up meaningfully, the market’s positioning could prove its undoing. Record highs, record leverage and historically low premium afford little room for a breather before it encourages panicked deleveraging.

Pegging events or data as certain catalysts for speculative impact is difficult. Europe’s recent banking concerns, monetary policy programs changing course and Chinese 2Q GDP are all notable but far from certain influences. When sentiment does sour, it will likely be self-reinforcing. Yet, the initial spark may seem relatively insubstantial (often called the butterfly effect).

Aside from the nuance of risk trends, interest rate speculation promises to be relatively straightforward. This past week, FOMC minutes, Fed member speeches and data seemed to reinforce the idea that the central bank will hike by mid-2015; but neither currency nor yields bore that expectation. Treasury yields may be falling as a side effect of safe haven demand stoking their price, but Fed Funds futures have similarly receded over the period. There is a large discount in the market’s forecasts to even the Fed’s own view of rate forecasts. This presents yet another unbalanced impact potential: not much room to deflate but plenty of scope to swell.

Amid data that ranges from economic health (UofM consumer sentiment, retail sales) to financial activity (TICS flows) to inflation (factory-level price indexes), the most concentrated potential for rate speculation rests in Fed commentary. Speeches by Fisher and Bullard aside, Chairwoman Janet Yellen is scheduled to give her semiannual testimony before congress on Tuesday and Wednesday. Direct questions on growth, stimulus, capital markets and other key topics should capture the market’s interest.

British Pound May Fall as Soft Inflation Data Undermines BOE Bets

Fundamental Forecast for British Pound: Neutral

• British Pound Rudderless After Non-Event BOE Policy Announcement
• June CPI May Disappoint, Trimming Rate Hike Bets and Sinking GBP

Monetary policy expectations remain firmly in the driver’s seat for the British Pound. Indeed, the correlation between GBPUSD and the UK 2-year Gilt yield – a reflection of investors’ near- to medium-term interest rate outlook – is now at a one-month high (0.42 on 20-day percent change studies). Last week’s BOE announcement proved to be a non-event, with Mark Carney and company leaving the setting of monetary policy unchanged and publishing no explanatory statement to lay out their reasoning going forward. That has left Sterling adrift, with key crosses EURUSD and EURGBP crosses left mired in narrow ranges.

The week ahead may mark a breaking point in the standstill as policy-shaping news flow returns. The spotlight will be on June’s CPI figures. The headline year-on-year inflation rate is expected to edge higher to 1.6 percent having slumped to a five-year low of 1.5 percent in the prior month. UK price-growth readings have proven increasingly disappointing over recent months.

Indeed, a Citigroup gauge measuring realized inflation data outcomes relative to consensus forecasts dropped to the lowest level in nearly two decades last month. That suggests analysts are underestimating the degree of deterioration in pricing trends and opening the door for a downside surprise. A lower-than-expected CPI print is likely to plant seeds of doubt in investors’ effervescent BOE interest rate hike expectations.

A distinctively hawkish shift in Governor Carney’s rhetoric in recent weeks has been taken at face value, pushing yields and the UK unit upward. Such complacency seems misplaced. The BOE’s policy-setting mechanism works on a “one man, one vote” basis: in order to raise rates, Mr. Carney would need to convince 4 more members of the 9-person MPC committee to vote with him to do so. UK economic data has increasingly fallen short of expectations since February, meaning gathering such a majority could prove difficult. An eye-catching miss on the benchmark inflation gauge threatens to put such concerns in such relief, forcing investors to pare back runaway tightening bets and sending Sterling broadly lower.

Elsewhere on the docket, Mr. Carney and Deputy Governor Andrew Bailey along with Donald Kohn and Martin Taylor of the FPC are set to testify before a Parliamentary committee on the latest Financial Stability Report. The key take-away from that document was that officials preferred macro-prudential tools rather than monetary policy as the vehicle to rein in the worryingly exuberant UK property market. That means the report’s contents offered little to help illuminate the near-term trajectory of interest rates, limiting its own impact and that of testimony on its findings on the British Pound.

Gold Breaks Through July Range- Rally at Risk Ahead of Yellen

FundamentalForecast for Gold:Neutral

• Gold and Silver Surge On Safe-Haven Demand, Crude Looks To US Data
• Gold Jumps to Four-Month High Upward Momentum May Be Fleeting

Gold prices are higher on the week with the precious metal up more than 1% to trade at $1335 ahead of the New York close on Friday. The advance marks the sixth consecutive weekly advance and comes on the back of a poor performance in broader equity markets and growing geopolitical tensions in the Middle East. Major US stock indices were off by more than 1% this week with European bourses shedding 3%-4% across the board amid concerns over the health of the Portuguese banking system. Although the rally in gold remains constructive, the sheer breath of the advance in combination with major central bank even risk next week has shifted our bias neutral in the near-term.

Looking ahead to next week, investors will eyeing the return of more pressing US data with retail sales, industrial production and the preliminary July University of Michigan confidence surveys. Taking center stage however will be Fed Chair Janet Yellen who will be speaking before congress next week in the Feds semi-annual Humphrey Hawkins testimony. With metrics in the labor markets continuing to improve and fears over rising inflationary pressures mounting, investors will be lending a keen ear to Yellen’s comments as the central bank comes under increased scrutiny over its prolonged accommodative stance. As such, look for topside advances in gold to remain limited in the near-term should interest rate expectations begin to factor in an early 2015 hike. That said, the technical outlook remains constructive above the July lows.

Back on the 20th of Junewe noted that the recent rally had, “broken through a confluence of key technical metrics including trendline resistance dating back to April, a longer-dating trendline resistance dating back to the 2012 high, the 61.8% retracement of the decline off the May high, the 200 & 50-day moving averages AND the weekly opening range high. Bottom line: the medium-term focus on gold shifts to the topside while above $1286 with a breach above key resistance at 1316/21 targeting the 61.8% retracement of the decline off the 2014 high at $1334.”

From a technical standpoint, this week’s rally took prices through the initial July opening range high which was just shy of the 61.8% retracement of the March decline at $1334. As such, we should be looking for a late-July high to offer selling opportunities. Interim support is now at $1334 with only a break below 1316 invalidating or medium-term constructive outlook. Look for resistance at $1356 with more substantial resistance seen at

$1367/71. This level is defined by the March 17th close, the 61.8% Fibonacci extension taken from the advance off the 2013 low and trendline resistance dating back to the August highs.

Japanese Yen Losses Remain Likely, but What Could Change?

Fundamental Forecast for Pound: Bearish

• USDollar looks like a buy versus the Japanese Yen
  
• These are the key levels to watch on the USDJPY

The Japanese Yen finished the week marginally higher versus the US Dollar, but the fact that it trades near critical resistance (USDJPY at support) leaves it at risk. We’ll watch the coming week’s Bank of Japan interest rate decision with special interest.

We expect little change from the BoJ and indeed the Dollar/Yen exchange rate seems likely to stick to its year-to-date trading range. It’s with that in mind that we believe the US Dollar looks like a buy versus its Japanese counterpart. But what are the risks to that trade?

Markets have long waited for BoJ Governor Kuroda to signal further monetary policy easing is likely, and continued disappointments have kept the Yen from falling further versus the Dollar. Kuroda recently reiterated that the BoJ expects the domestic economy will continue recovering at a moderate pace and inflation will continue to rise.

The lack of urgency for further policy action will likely keep the JPY contained, but any hawkish surprises could force a significant USDJPY decline.

FX derivatives show that 1-week volatility prices on the Dollar/Yen continue to trade near record lows; if traders fear a hawkish shift from the Bank of Japan they’re certainly not showing it. There may be only so long the Japanese Yen can continue to stay below key highs, and the recent breakdown in the EUR/JPY acts as warning that miniscule price ranges can only last so long.

We remain ready for anything, but at this stage the USD/JPY seems likely to trade above key year-to-date lows at ¥100.70 through the foreseeable future.

NZD/USD Risks Fresh Record-Highs Ahead of RBNZ on Faster Inflation

Fundamental Forecast: Bullish

• NZD/JPY Close Above 89.50 to Raise Scope for Higher-High
• Chinese CPI, PPI Figures Fail to Excite Currency Markets Overnight

The NZD/USD remains at risk of marking fresh record-highs ahead of the next Reserve Bank of New Zealand (RBNZ) policy meeting on July 23 as the economic docket is expected to show heightening price pressures across the region.

Indeed, the headline reading for New Zealand inflation is expected to increase an annualized 1.8% in the second-quarter, which would mark the fastest pace of growth since the last three-months of 2011, and heightening price pressures may generate a further advance in the exchange rate as it fuels interest rate expectations. According to Credit Suisse overnight index swaps, market participants are pricing a 90% chance for another 25bp rate hike in July, but we may see the RBNZ take a more aggressive approach in normalizing monetary policy as the stronger recovery raises the risk for inflation.

RBNZ Assistant Governor John McDermott warned that the central bank will aim for ‘low and stable inflation’ as the central bank raises its outlook for growth, and the stronger recovery should continue to heighten the appeal of the New Zealand dollar, especially as Fitch Ratings raising its credit rating outlook for the region. With that said, the positive developments coming out of the region may continue to limit the downside risk for the NZD/USD, and we may see the RBNZ do little to halt the advance in the local currency as it helps the central bank to achieve price stability.

As a result, we will retain a bullish outlook for the NZD/USD as it approaches the 2011 high (0.8841), and we will continue to look for opportunities to ‘buy dips’ ahead of the RBNZ interest rate decision should the inflation report further boost interest rate expectations.

Nikkei forecast for the week of July 14, 2014, Technical Analysis

The Nikkei as you can see had a slightly negative week, but we still sit above the ¥15,000 level, a key support level in our opinion. We think that the market is probably going to bounce around between ¥15,000 and the ¥15,500 levels, so with this we believe that a break above ¥15,500 would in fact constitute a move to the next leg higher. Any pullback at this point in time should find plenty of support all the way down to ¥14,000, so we are essentially in the “buy only” camp right now.

DAX forecast for the week of July 14, 2014, Technical Analysis

The DAX fell hard during the previous week, testing the €9600 level. It is at this level though that we should start to see significant support come into play, and that support extends all the way down to the €9000 level, essentially making this a market that you cannot sell. We are looking for supportive candles in order to start buying, as we believe ultimately the €10,000 level will be broken to the upside. Once we get above the €10,000 level, we suspect that the very next target will of course be €11,000 or so, and probably an extension of that move much higher.