Dollar dips on weak consumer confidence numbers

The dollar edged lower against most major currencies on Tuesday after a widely-watched barometer of consumer confidence missed expectations and renewed sentiments for the Federal Reserve to very gradually taper monetary stimulus tools.

Stimulus programs such as the Fed's $65 billion in monthly bond purchases tend to weaken the dollar by driving down interest rates, which bolsters gold's appeal as a hedge.
In U.S. trading on Monday, EUR/USD was up 0.05% at 1.3742.
The dollar softened after the Conference Board reported that its consumer confidence index slipped to 78.1 in February from 79.4 in January, mainly due to concerns over general business conditions, jobs, and earnings.
Analysts were expecting the index to tick up to 80.0.
The present situation index rose to its highest level in almost six years, but the expectations index declined, indicating that while consumers believe the economy has improved they do not foresee further considerable improvement in the coming months.
Also on Tuesday, the Standard & Poor’s/Case-Shiller house price index rose 13.4% in December from a year earlier, the best December reading in eight years and slightly ahead of forecasts for a 13.3% gain.
Supporting the dollar somewhat were perceptions that powerful winter storms trekking across the country over the past month have bruised the economy and not a noteworthy decline in domestic demand, which should open the door to more robust economic indicators when the weather warms up.
Meanwhile in Europe, the European Commission revised up its growth forecast for the euro zone to 1.2% this year, up from 1.1% in November, which bolstered the euro.
However, the European Commission also cut its inflation forecast for 2014 to 1% from 1.5% in November, and warned that debt levels in several countries will continue to climb.
Earlier Tuesday, official data confirmed that Germany’s economy grew 0.4% in the fourth quarter and expanded 1.3% on a year-over-year basis, as strong overseas demand bolstered exports.
The dollar was down against the yen, with USD/JPY down 0.38% at 102.12, and down against the Swiss franc, with USD/CHF down 0.21% at 0.8870.
The greenback was down against the pound, with GBP/USD up 0.13% at 1.6676.
The pound saw support after data from the British Bankers Association showed that mortgage approvals rose 57% in January from a year earlier to 49,972, hitting a 76-month high.
A separate report by the Confederation of British Industry said U.K. retail sales rose at the fastest rate since June 2013 in February. The CBI distributive trades survey rose to 37 up from 14 in January, well ahead of forecasts for an uptick to 15.
The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.21% at 1.1085, AUD/USD down 0.23% at 0.9014 and NZD/USD down 0.11% at 0.8323.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.09% at 80.17.
On Wednesday, the U.S. is to release data on new home sales, a leading indicator of demand in the housing market.

Awaiting the USDCAD falling wedge breakout

The USDCAD pair is trading in a falling wedge formation following an incessant rise throughout the beginning of 2014. However, Signs point towards a potential breakout to the upside which could spark a return to the highs of 1.22.

On the daily chart below, there has been a clear tightening of price action with the falling wedge currently in place. This comes amid a notable strengthening of this pair and clearly defined uptrend. Given that this is currently the case, I see the current move as nothing more than a retracement within a longer term uptrend and thus am looking for the next leg up higher. As such, I do not know exactly where this retracement will bottom out and reverse, yet given the wedge formation is at the point of completion, I would expect the breakout of it to be both notable and immanent.

Taking a look at the indicators, the CCI and stochastic both tell a story of an oversold market which is on the turn towards the upside. Meanwhile the MACD histogram is beginning to move closer to 0, which signals a tightening of the signal and MACD line. This typically precedes a cross of the two which on this occasion would be bullish. Thus overall the picture supports the notion that we could see a break to the upside.

On the four hour chart, the pair has found key support at 1.0945 for the moment, with the 200 period SMA providing near term resistance. The stochastic, CCI and MACD are all moving higher, which points to short term bullish momentum. However, I will be watching closely for a break to the upside for a continuation of the uptrend, where the previous high of 1.222 represents a notable target, along with nearer levels of 1.1036, 1.112 and 1.1171. Should the pair break to the downside of this wedge, I would be more neutral in bias.

EUR/USD gains as soft U.S. consumer confidence report weakens dollar

The euro moved higher against the dollar on Tuesday after a widely-watched gauge of U.S. consumer confidence missed expectations and sent investors rethinking the pace at which the Federal Reserve will dismantle monetary stimulus tools that weaken the greenback to spur recovery.

In U.S. trading, EUR/USD was trading at 1.3748, up 0.09%, up from a session low of 1.3716 and off a high of 1.3767.
The pair was likely to find support at 1.3708, Monday's low, and resistance at 1.3773, Monday's high.
The dollar softened after the Conference Board reported that its consumer confidence index slipped to 78.1 in February from 79.4 in January, mainly due to concerns over general business conditions, jobs, and earnings.
Analysts were expecting the index to tick up to 80.0.
The present situation index rose to its highest level in almost six years, but the expectations index declined, indicating that while consumers believe the economy has improved they do not foresee further considerable improvement in the coming months.
The dollar weakened as investors speculated that the Federal Reserve will very gradually taper its $65 billion monthly  bond-buying program, which weakens the dollar by suppressing long-term borrowing costs to spur recovery.
Also on Tuesday, the Standard & Poor’s/Case-Shiller house price index rose 13.4% in December from a year earlier, the best December reading in eight years and slightly ahead of forecasts for a 13.3% gain.
Meanwhile in Europe, the European Commission revised up its growth forecast for the euro zone to 1.2% this year, up from 1.1% in November, which bolstered the euro.
However, the European Commission also cut its inflation forecast for 2014 to 1% from 1.5% in November, and warned that debt levels in several countries will continue to climb.
Earlier Tuesday, official data confirmed that Germany’s economy grew 0.4% in the fourth quarter and expanded 1.3% on a year-over-year basis, as strong overseas demand bolstered exports.
The euro was down against the pound, with EUR/GBP slipping 0.14% to 0.8236, and down against the yen, with EUR/JPY trading down 0.23% at 140.47.
On Wednesday in the euro zone, Germany is to release a report on Gfk consumer climate.
The U.S. is to release data on new home sales, a leading indicator of demand in the housing market.

EUR/USD Forecast Feb. 17-21

EUR/USD Forecast Feb. 17-21

EUR/USD managed to move higher within range as economic growth trumped inflation fears. Is a break out coming soon? German economic sentiment and purchasing managers’ indices are among the main market movers of the week. Here is an outlook on the major events and an updated technical analysis for EUR/USD.
Europe’s locomotive posted a solid growth rate of 0.4% in Q4 2013, beating forecasts for a 0.3% expansion rate thanks to a rise in exports and capital investment. Accompanied with stronger than expected GDP growth from France and other countries, the euro-zone recovery also accelerated and this boosted the euro. The good news beat worries of ECB action. A French ECB member said that the ECB is considering negative rates “very seriously” and the euro took a serious dive. In the US, weak retail sales alongside stood out in a streak of disappointing numbers. The effect of the weak weather is not so temporary, and the weakness is not only weather related. Let’s start:
Updates:

EUR/USD daily graph with support and resistance lines on it. Click to enlarge:

1. Eurogroup Meetings: Monday. The Eurogroup forum where all Finance Ministers from the Eurozone countries meet to discuss monetary union issues, will gather in Brussels a day before the ECOFIN Council meeting.
2. Current Account: Tuesday, 9:00. The euro zone’s current account surplus increased unexpectedly in November reaching the highest level in seven months with a seasonally adjusted surplus of EUR23.5 billion. November release was better than the surplus of EUR22.2 billion registered in October. Economists expected surplus to contract to EUR19.2 billion in November. On a yearly-cumulated current account, November posted a surplus of EUR215.8 billion, 2.3% of euro area GDP, compared with a surplus of EUR118.0 billion, 1.2% of euro area GDP, for the previous 12-month period. The euro zone’s current account surplus is expected to narrow to EUR19.8 billion
3. German ZEW Economic Sentiment: Tuesday, 10:00. Investors and analysts sentiment in declined mildly in January to 61.7 from 62 in the previous month, contrary to predictions for a rise to 63.4. Nonetheless, investor sentiment is still elevated in accordance with the upturn in German economic growth. ZEW president Clemens Fuest remarked November reading was not a real setback as the fundamentals of the German economy remain strong. Meantime, ZEW Economic Sentiment edged up to 73.3 from 68.3 in December, beating predictions for a 70.2 reading, indicating the Eurozone is finally moving closer to a solid recovery path. German ZEW Economic Sentiment is expected to decline further to 61.3 while ZEW Economic Sentiment is forecasted to advance to 73.9.
4. ECOFIN Meetings: Tuesday. The Economic and Financial Affairs Council, reconvenes after the Eurogroup Meetings. The Council is comprised of the Economics and Finance Ministers of the Member States, as well as Budget Ministers when budgetary issues are discussed, and meets on a monthly basis. It discusses EU economic policy coordination, economic surveillance, monitoring of Member States’ budgetary policy and public finances, the euro (lel, practical and international aspects), financial markets and capital movements and economic relations with third countries.
5. German PPI: Thursday, 7:00. Germany’s manufacturing output prices increased 0.1% in December, following a 0.1% decline in the preceding month. However prices were 0.5% lower than posted a year earlier due to lower costs for energy, commodities and intermediate goods. PPI excluding energy remained flat in December, and down 0.2% from a year earlier. A rise of 0.3% is forecasted this time.
6. French CPI: Thursday, 7:45. French consumer price index increased by 0.3% in December amid sharp rises of services and energy costs. A flat reading in the previous month preceded the rise. On yearly basis, the CPI edged up 0.7%. Economists expected a bigger increase of 0.4%. CPI is expected to fall 0.3% this time.
7. Flash manufacturing and services PMIs: Thursday. European manufacturing and services gained traction in January suggesting the Eurozone is on its way to a solid recovery. PMI manufacturing expanded to 53.9 from 52.7 in December and the services sector climbed to 51.9 from 51.0.  Germany manufacturing sector continued to grow in January reaching 56.3 compared to 54.35 in December while the services index advanced to 53.6 from 53.5. However, the upturn did not include France, the bloc’s second-biggest economy, where activity contracted for the third month running in January. French manufacturing increased from December to 48.8 but remained in contraction and the services sector increased mildly to 48.6 from 47.8 in December still shrinking. French Manufacturing is expected to improve to 49.6 and services to 49.5. German Manufacturing is predicted to decline to 56.4, while services sector is expected to climb to 53.4. Finally, the Eurozone manufacturing, is expected to reach 54.2 and services are predicted to advance to 51.93
8. Consumer Confidence: Thursday, 15:00. Euro-area consumer confidence improved more than expected in January, climbing to minus 11.7 from minus 13.5 in December indicating positive signs that the currency bloc’s recovery is gathering momentum. Expansion in the Eurozone’s Manufacturing output in January proves the process of recovery is underway. Consumer confidence is expected to improve further to -11.
9. G20 Meetings: Friday. G20 finance ministers and central bank governors will meet in  Sydney Australia the host of February’s meetings. Prime Minister Tony Abbott says Australia’s 2014 chairmanship will structure the global leaders’ discussion around the themes of boosting economic and employment growth, and making the global economy more resilient to deal with future shocks.
10. EU Economic Forecasts: Friday, 10:00. Since 2012, the European Commission publishes three macroeconomic forecasts per year – in the winter, spring and autumn – instead of the usual two editions. This procedure was established to aid EU member states struck by the Eurozone’s economic and financial crisis. The forecasts, focuses on Financial Affairs of Member States in the euro area, but also include outlooks for candidate countries as well as some non-EU countries. In November’s release the forecast revealed signs for an economic recovery in Europe in the third quarter of 2013. The current event will feature panel discussions as well as on and off the record talks with senior members of the EU institutions, representatives of the upcoming Greek Presidency, the ECB and the IMF as well as experts from the think tank and academic communities in Brussels.

* All times are GMT
EUR/USD Technical Analysis
Euro/dollar began the week with an initial move higher, but was capped by the 1.3650 line (mentioned last week). It then dropped towards 1.3560 before making another move higher, flirting with the 1.37 line and keeping above 1.3650.
Technical lines from top to bottom:
1.38 is a round number and also worked as a temporary cap during that period of time and also in October 2013. Another round number, 1.37, is another resistance line after capping the pair in December.
1.3650 provided support in December and worked as resistance in September 2013, and is also a significant line. Also the February rally fell short of this line. Below, 1.3560 worked as good support twice during February 2014.
The January 2014 low of 1.3515 provides minor support on the way down. 1.3450 worked as resistance in August 2013 and as support in September and October. It is now a key line on the downside.
The round number of 1.34 worked as resistance several times in 2013, and is strengthening now. 1.3320 worked as a double top in early September and it was crossed only with a Sunday gap. It remains a clear separator of ranges.
It is closely followed by 1.3295, which was the bottom in November and is part of the broken trend line. 1.3175 capped the pair during July 2013.
1.3100 is worked as temporary resistance in December 2012 and is becoming more important once again, after capping a recovery attempt in June and then in July and providing support in September. Below, 1.3050 is minor support after holding the pair in August 2013.
Long term uptrend support recaptured
A line beginning in the lows of early September that was connected to a line in November gave support to EUR/USD for some time, was broken and then recaptured. A fresh drop proved to be short lived. Will the pair continue trading along this line?
Downtrend support that began in December and was formed in January is getting further away now.
I remain neutral on EUR/USD
Better than expected GDP certainly supports the euro, and we could get more optimism from ZEW and also upbeat PMIs. In a week without any expected worrying inflation numbers, the euro could gain. But, on the other hand and despite recent US weakness, the Fed’s taper train is still on the track. The FOMC meeting minutes could prove this once again.
The failure of EUR/USD to break out of the recent range shows that much more is needed for an upside break out. Downside risks come from another mention of negative rates. As we’ve seen the euro is very sensitive to such talk.

Bitcoin Prices Rebound Slightly on Mtgox as Exchange Issues Statement

Bitcoin prices rebounded slightly on the troubled exchange MtGox after the company issued a statement on bitcoin withdrawals earlier in the day. In it, MtGox set a two day period for testing withdrawals followed by an update on the situation on Monday:
‘’In order to implement our solution to the “transaction malleability” issue being faced by bitcoin exchanges and businesses, we are going to have a 6-hour downtime on all bitcoin deposits and internal bitcoin transfers in addition to the current pause on bitcoin withdrawals. Trading will otherwise still be open as usual. Once the implementation is complete customers will again be able to deposit bitcoin, but we will be doing extensive testing before bitcoin withdrawals are reactivated. We will publish an update on the situation on Monday.’’
The 6 hour window ended as of 15:15 GMT, according to MtGox support staff on IRC. At the time this article was being written (16:00 GMT) there has been no further update on the situation from MtGox. BTC/USD is currently trading at $388 on Gox, up from 310 earlier in the day. This is still a massive 263 dollars below the $641 quote at BitStamp.

British Pound Eyes 1.6800+ on BoE Policy- Still Favor ‘Buying Dips’

Fundamental Forecast for the British Pound: Bullish

• GBP/USD Surges Through $1.65 on BoE’s Quarterly Inflation Report
• GBP/USD Approaches 2014 High as GBP/AUD Breakout Begins
• For Real-Time Updates and Potential Trade Setups on the British Pound, sign up for DailyFX on Demand

The British Pound rallied to a fresh yearly high of 1.6722 following the Bank of England (BoE) Inflation Report, and the GBPUSD may press higher next week should the fundamental developments coming out of the U.K. highlight a stronger recovery for 2014.

Indeed, another 20.0K drop in U.K. Jobless Claims should prompt a bullish reaction in the sterling, but a soft Consumer Price report paired with a marked slowdown in Retail Sales may generate a near-term correction in the GBPUSD as the pair carves a higher high in February.

Nevertheless, it seems as though the BoE removed the 7% unemployment threshold as jobless claims are expected to contract for 14 consecutive months in January, and the Monetary Policy Committee (MPC) Meeting Minutes may spur a further shift in the policy outlook should we see a growing number of central bank officials show a greater willingness to normalize monetary policy sooner rather than later. As a result, market participants now largely see the first rate hike coming at the end of this year or in early 2015, but Governor Mark Carney may sound increasingly hawkish over the coming months amid the growing threat of an asset-bubble in the U.K.

With that said, the bullish sentiment surrounding the British Pound should gather pace over the near to medium-term, and the next topside target in around 1.6800-50 as the Relative Strength Index breaks out of the bearish trend dating back to September. In turn, we will retain our game plan to ‘buy dips’ in the GBPUSD, and we will continue to look for higher highs paired with higher lows amid the ongoing shift in the BoE policy outlook. – DS

Gold Technicals – Bullish Momentum Not Letting Up

It is very strange seeing Gold prices crossing the 1,300 mark. According to most analyst expectations, Gold should be trading lower and not higher as there is less need for the yellow metal as global economy start to recover. Need for inflation protection is also lower now given that US has already started tapering and is expected to do more of the same in 2014 until the entire stimulus purchase program is stopped. Certainly the decline in stocks seen in Jan has shaken risk appetite and has been one of the major contributor to current strength in Gold, but considering that US stocks have since stabilized and began to trade higher, we should have seen Gold prices falling slightly as well.

Some may say that stimulus speculation (e.g. expecting Yellen to stop tapering) may be the true driver that sent both Stocks and Gold higher recently, and this assertion appears to be reasonable given that interest yields are remaining depressed. However, it should be remembered that current long-term downtrend started shortly after QE3 was announced back in 2012 September, and since additional QE didn’t really drive Gold prices up nor even keep prices afloat, why is a lack of reduction in the aforementioned QE purchase driving prices higher?

Hourly Chart

We can postulate and discuss the merits of different theories of why Gold prices is higher, but the fact is that prices are indeed pushing higher, and we have to accept that bullish momentum is strong right now with 1,300 round figure resistance crossed. From a technical perspective, with prices trading back within the rising Channel, the momentum that has been in play since Monday has been restored and we could see further bullish endeavours next week. Channel Top will be the obvious target, but the likelihood of prices hitting this in the last 12 hours of this week’s trade may be hard as Friday’s tend to see pullbacks from the dominant trend during the week as traders have a higher tendency to take profit from their earlier positions.

Daily Chart

This is affirmed on the Daily Chart where Gold has significant resistance in the form of 1,315 and Channel Top which price will need to overcome in order to hit the Short-Term Channel Top which is sitting above 1,315 right now. Given that fundamental reasons for Gold rally is sketchy and looming resistances which will be hit in the near future, a short-term correction will be possible as well. This notion is echoed by Daily Chart’s Stochastic indicator which is heavily Overbought right now. This does not invalidate the bullish trend that is in play right now, but certainly should put pause to traders who may want to rethink about their decision to buy Gold right here right now following a break of 1,300.

Resilient Euro Needs a Spark as Gains Limited to Dollar, Yen

Fundamental Forecast for Euro: Bullish

- The retail forex crowd remains short EURUSD – and has added to losing positions.

- The Euro’s relative fortunes may be improving as the tides have turned against the US Dollar.

- Have a bearish (or bullish) bias on the Euro, but don’t know which pair to use? Use a Euro currency basket.

Last week didn’t provide much of any considerable price action in the FX markets, and the Euro’s performance mirrored that of the broader market. The EURUSD did gain +0.42%, but that’s all the gains the Euro could find; yet losses were limited to a maximum of -0.41% against every other major currency but for the British Pound (-1.62%) which is in a world of its own right now.

Midweek the Euro looked shaky for one of the only reasons to entertain a bearish Euro bias at present time: threats of policy action to ward off the appearance of impending deflation. Several European Central Bank policymakers have suggested one of a cut in the main deposit rate, another LTRO, or even weakening the Euro directly could be employed. None of these calls are coming at a time when crisis conditions are present.

Not surprisingly, the more aggressive dovish commentary in recent weeks has come from France, a country with a declining rate of export growth over the past three-plus years. French exports have fallen from +10.7% y/y in the 3Q’10 to +1.5% in the 4Q’13. A weaker Euro would absolutely help French exporters get a competitive edge. But it’s much easier for policymakers to blame a seemingly crooked exchange rate for the problems than the misguided policy created by their own hands; c’est la vie.

There has to be good reason for the ECB to remain on hold all these months despite the continued downswing in inflationary pressures. Even as export growth in the region has been stunted, a stronger Euro might not be such a bad thing for the Euro-Zone at present time. With unemployment rates, especially among the youth, elevated to at or near all-time highs, inflation would more quickly erode purchasing power from a struggling consumer base.

Just like higher taxes and reduced government spending (austerity) can provoke consumers to spend less (simple opportunity cost of what to do with diminishing available capital), more inflation in an environment characterized by a weak labor market and low wage growth could cripple consumption and drive the Euro-Zone back into recession.

This past week, two developments along this front arose: updated inflation expectations from the ECB remain firm towards +1.7% to +2.0% over the medium-term; and the 4Q’13 GDP report was better than expected at +0.5% y/y versus +0.4% y/y expected. The 3Q’13 GDP figure was also revised higher to -0.3% y/y from -0.4% y/y. In support of the ‘a stronger Euro is helping’ argument, consider that on an equal-weighted basis versus the Australian Dollar, the British Pound, the Japanese Yen, and the US Dollar, the Euro gained +1.12% in the 3Q; growth accelerated in the 4Q when the Euro basket gained +4.01%.

In February, the Euro’s gains have been limited to against the Japanese Yen and US Dollar, by +1.28% and +1.51% respectively. Realistically, the Euro might need a spark to help it gain traction elsewhere. This is not purely the result of weak data on the Euro front (the Citi Economic Surprise Index increased to 15.0 on Friday from 9.2 of the prior week); but rather sincere improvement in other currencies.

We maintain that a BoE-styled Funding for Lending Scheme (FLS) has become a more appealing outcome, and it could address credit concerns without putting the Euro at risk of a massive ECB balance sheet expansion that another LTRO or a Fed-styled QE would bring. We remain optimistic on the Euro, especially as extreme US Dollar positioning builds.

US Dollar Unable to Keep Gains Despite Taper Speculations

  

The US dollar jumped against the euro after the Federal Reserve released its monetary policy minutes yesterday, but was flat versus the Great Britain pound and the Japanese yen. Today, the greenback continued to trade sideways against the sterling, but fell a little versus the euro and slumped against the yen.

The Fed minutes revealed that US policy makers are going to proceed with quantitative easing tapering:

In their discussion of monetary policy in the period ahead, all members agreed that the cumulative improvement in labor market conditions and the likelihood of continuing improvement indicated that it would be appropriate to make a further measured reduction in the pace of its asset purchases at this meeting. Members again judged that, if the economy continued to develop as anticipated, further reductions would be undertaken in measured steps.

Some members of the Board believed that the current economic conditions warrant slower pace of stimulus reduction, while other thought that the size of asset purchases should be reduced further. Whatever the case, it looks like the Fed will proceed with QE tapering and this is positive for the dollar.
Not everything was good for the greenback as the US housing data was rather bad, worse even than pessimistic expectations. As a result, the US currency was unable to maintain its rally.
EUR/USD was up a bit from 1.3732 to 1.3744 as of 2:08 GMT today. GBP/USD traded near its opening level of 1.6678, while USD/JPY sank from 102.31 to 102.01.