First palm-crop sag down since ’98 continues bull market: Commodities Palm-oil production in Indonesia, the world’s largest supplier, is declining for the first time in 15 years after heavy rains and drought. The sagged down is triggering a bounce back in prices from the weakest point in 45 months. The country’s output of the most-consumed edible oil will relinquish 1.9 percent to 26.5 million metric tons this year, according to the median of five grower estimates recorded by Bloomberg. That’s the first decline since 1998, according to data from the U.S. Department of Agriculture which predicts a crop of 28.5 million tons. Deutsche Bank AG says futures traded in Malaysia, a global benchmark, will average 2,800 ringgit ($867) a ton next year, 5.4 percent more than now. Financial values skyrocketed 12 percent in October, the most since 2010, and are up 23 percent from this year’s closing low in July. Plantations in Sumatra got almost twice the normal rainfall and a shortened dry season in Kalimantan curbed output after drought in the past two years weakened trees. The commodity is consumed in everything from Nestle SA instant noodles to Unilever soaps. McDonald's Corp. uses it for cooking in Asia and South America. “Bad weather disrupted crops almost all over,” said Asmar Arsjad, 74, a Sumatra farmer and secretary-general of the Indonesia Oil Palm Smallholders Association, which represents about 4 million producers across the 3,300 mile-wide (5,300 kilometers) archipelago. “People expected that production will increase in October. Because of the rain, floods, it dropped.” Bull Market Futures traded on Bursa Malaysia Derivatives in Kuala Lumpur rallied 8.9 percent this year to 2,656 ringgit, heading for the first annual gain since 2010. The Standard & Poor’s GSCI Index of 24 raw materials, which doesn’t include palm, slid 4 percent and the MSCI All-Country World Index of equities jumped 18 percent. The Bloomberg Treasury Bond Index lost 2.3 percent. Indonesia boosted palm-oil output fivefold since the last drop in 1998, USDA data show. As recently as September, the Indonesia Palm Oil Board was expecting another record year, with a forecast of 28 million tons. On September 30, the group estimated production at 26.7 million tons to 27 million tons, and Chairman Derom Bangun said a further reduction is possible. Yields were curbed by excessive or untimely rains this year, said Evi Lutfiati, the head of climate information at the Meteorology, Climatology and Geophysics Agency in Jakarta. In North Sumatra, Riau and West Sumatra, rainfall in October was as much as 500 millimeters (19.7 inches), compared with 200 to 300 millimeters normally, and Kalimantan had rain in May and June that cut the four-month dry season by more than half. Unexpected Decline Palm is grown year-round within 10 degrees of the equator, and producers crush the fruit to make the oil. Output is usually lowest in January or February and peaks in September or October. Indonesian production was lower than expected in the first half of 2013 and didn’t recover as anticipated in the second half, the Palm Oil Board’s Bangun said. Supplies probably will be lower than expected, Deutsche Bank said in a November 15 report by analyst Michelle Foong in Kuala Lumpur, raising its price forecast by 8 percent. Michael Greenall, a Singapore-based analyst at BNP Paribas SA, said prices may rise to 2,800 ringgit in the first quarter, citing lower growth in Indonesian supplies and less fertilizer use. Futures in Kuala Lumpur rose in December in nine of the past 10 years, according to data compiled by Bloomberg. Yield Bounced Back The unexpected supply drop will be short-lived because yields will surge next year, said Dorab Mistry, the director at Godrej International Ltd. Mistry, who predicted in September that prices may plunge to 2,000 ringgit by January, said he and other analysts underestimated the cyclical low in output and the impact of the weather. Futures may climb to 2,800 ringgit if production is poor in the first two months of next year, he said November 14. He speaks tomorrow at a conference in Indonesia. Supply will expand next year, according to the Indonesian Palm Oil Association in Jakarta, which represents suppliers of about 60 percent of the nation’s output. Singapore-based Golden Agri-Resources Ltd., the second-largest plantation operator, expects output growth of as much as 10 percent in 2014, Chief Financial Officer Rafael Buhay Concepcion Jr. said November 12. Global production will exceed demand by the most ever in the year that began October 1 as output surges to a record 58.3 million tons, including 31 million tons from Indonesia, the USDA estimates. World stockpiles will expand 18 percent to an all-time high of 9.2 million tons. Output in Indonesia may climb to 28 million tons this year from 25.7 million tons in 2012, agriculture minister Suswono said at a conference today. Oilseed Glut This year’s rally may slow demand. Indonesia will boost the tariff on shipments to 12 percent next month from 9 percent, said the Industry Ministry. The tax on shipments from Malaysia will rise to 5 percent, from the 4.5 percent rate that has been in place since March, the government said. The two countries account for about 86 percent of global supply. Prices may come under pressure from soybeans, a competing oilseed. Oil World, a Hamburg-based researcher, raised its forecast for global supply by 1.8 percent to 286.5 million tons on Nov. 19, citing the improved crops from Brazil to the U.S. Goldman Sachs Group Inc. listed soybeans among its most-bearish commodity forecasts for 2014, predicting year-end prices of $9.50 a bushel in Chicago, from $13.20 yesterday. Palm oil futures still are up 24 percent since touching a 45-month low of 2,137 ringgit on July 26. Those predicting a return to lower prices may be underestimating the extent of the supply drop in Indonesia, said Greenall, the BNP analyst. Inventories in Indonesia probably fell to 2.04 million tons in October from 2.6 million tons a year earlier, according to the median of estimates from five plantation executives, traders and refiners compiled by Bloomberg. Reserves in Malaysia, which discloses official data every month, stood at 1.85 million tons in October, 26 percent less than a year earlier. Water Deficit While rain hurt yields this year, severe droughts in mid-2011 and mid-2012 had a delayed impact on production in the second and third quarters of this year, said Ling Ah Hong, director of Ganling Sdn., a Malaysian research and consulting company. The dry spell caused floral abortion, when cells die before they can mature, said Ling. “It’s the impact from last year and two years ago,” said Tony Liwang, a senior researcher at PT Sinar Mas Agro Resources and Technology, a unit of Golden Agri. “We had a water deficit last year. That shocked the trees. Female flowers didn’t grow.” Biodiesel demand in Indonesia may keep prices elevated. One third of palm output may be used in the fuel in one or two years if the government is consistent in applying the policy, Mahendra Siregar, the head of the Investment Coordinating Board, said November 7. About 3 percent of the crop is used as fuel now, according to the Indonesian Biofuels Producers Association. Golden Agri’s profit will rise 43 percent to $426.4 million in 2014, according to the mean of 19 analysts’ forecasts compiled by Bloomberg. Shares of the company surged 15 percent in October, the biggest gain since April 2009. Deutsche Bank raised its recommendation on the stock to “buy” from “sell.” “The bottom line is that we’re facing higher prices coming through in the next few months,” said Greenall at BNP Paribas, who’s covered plantations for 25 years. “This year and next year, you’ll see a dip in production growth.”
Stocks slump as typhoon to protests trigger outflows: Southeast Asia Stocks in the Philippines, Thailand and Indonesia, the best movers worldwide during the past five years, are leading losses in emerging markets this month as foreign outflows approach a record on indications of slowing development. The Philippine Stock Exchange Index has plunged down 6.3 percent in November while equity gauges in Thailand and Indonesia relinquished at least 5.8 percent, after tripling since 2008. Foreigners pulled a combined $1.98 billion from the three markets this month, bringing outflows this year to $5.48 billion, the most on a yearly basis since Bloomberg started gathering data in 1999. Devastation from Typhoon Haiyan in the Philippines, political unrest in Thailand, a plunging currency in Indonesia and prospects for trimmed Federal Reserve stimulus are denting investor confidence in economies that expanded an average 6.5 percent last year, more than twice the pace of global growth. Macquarie Investment Management has shifted to Chinese stocks, while Samsung Asset Management sent money to Malaysia and the Thai state pension fund is investing in Europe and the U.S. “It’s likely we will stay underweight for the time being” in Southeast Asia said Samuel Le Cornu, who helps oversee $1 billion, including the Macquarie Asia New Stars Fund, which returned an annualized 37 percent during the past five years. That beat 99 percent of peers tracked by Bloomberg. Bond Sales Investor pessimism is also reflected in the nations’ debt and currency markets. Indonesia sold less than half its target in a debut domestic dollar debt offering on November 25, while Thailand issued about half its planned amount of government-backed debt at above-market yields. Foreign investors sold a net $1.3 billion of Thai bonds this month, according to Thai Bond Market Association data. The rupiah has weakened 6.2 percent against the dollar in November to the lowest level since 2009, while the baht has slumped 3.1 percent and the peso dropped 1.2 percent. The Philippine stock index declined 0.6 percent as of 10:05 a.m. in Hong Kong, leading losses in Asian indexes. Indonesia’s gauge retreated 0.3 percent. Losses in the three countries’ stocks helped spur a 5.8 percent decline in the MSCI South East Asia Index this year through yesterday. The regional gauge, which also includes shares in Singapore and Malaysia, is trailing the MSCI All-Country World Index by 24 percentage points, the most for any year since 2000. Turning Point The Southeast Asia measure has dropped 15 percent since May 22, when Fed Chairman Ben S. Bernanke first signaled the U.S. central bank may reduce its bond-buying program if the world’s largest economy strengthens. The Fed will begin paring back stimulus in March, according to the median estimate of 32 economists in a Bloomberg survey conducted November 8. “Stock markets in Thailand, Indonesia and the Philippines have been the hardest hit since the Fed indicated its intention to taper,” Yingyong Nilasena, the chief investment officer at Thailand’s Government Pension Fund, which oversees more than $19 billion, said by phone on November 22. “That was the turning point.” The three countries now face growing domestic challenges. Damage from the Nov. 8 typhoon in the Philippines, which left at least 5,500 people dead and displaced 3.5 million, is estimated at $6.5 billion to $14.5 billion, according to catastrophe modeling firm AIR Worldwide. The local economies of the affected areas in central Philippines, which account for about 12.5 percent of gross domestic product, may contract 8 percent to 10 percent next year, Finance Secretary Cesar Purisima said November 12. Philippine growth slowed to 7 percent in the third quarter from 7.6 percent in the previous period, the government said yesterday. Trimmed Estimate Thai protesters besieged government ministries this week and urged civil servants to join a push to oust Prime Minister Yingluck Shinawatra, an escalation of rallies that began a month ago against an amnesty proposal for political offenses stretching back to the 2006 coup that ousted her brother Thaksin. The government cut its 2013 growth forecast to 3 percent this month, from a projection of as much as 4.3 percent in August. The economy expanded at a slower-than-estimated 2.7 percent pace in the quarter ended September 30 amid weakening exports and declining consumption. “I’ve been selling for tactical reasons,” Alan Richardson, whose Samsung Asean Equity Fund outperformed 96 percent of peers tracked by Bloomberg during the past 12 months, said by phone on Nov. 21. “Social unrest over Thai politics is expected to get worse before it gets better.” Rally Outlook Indonesia’s central bank has raised borrowing costs five times since May to the highest level in more than four years as policy makers seek to support the rupiah, combat inflation and rein in the nation’s current-account deficit. Tighter monetary policy has so far done little to stem declines in the currency, which depreciated beyond 12,000 per dollar yesterday for the first time since March 2009. “The recent weakening in the rupiah will push imported inflation higher,” Enrico Tanuwidjaja, an economist at Nomura Holdings Inc. in Singapore, said on November 27. While the International Monetary Fund estimates growth in the three economies will slow to about 5 percent this year, that’s still higher than the Washington-based lender’s 4.5 percent growth projection for all emerging nations. The Philippine economy may get a boost from post-disaster reconstruction, central bank Governor Amando Tetangco said this month. Indonesia’s inflation rate, which hit a four-year high of 8.79 percent in August, slowed to 8.32 percent in October. U.S. Stocks Thai equities have rebounded after past periods of political tension. While the benchmark SET Index lost as much as 13 percent in four months after military leaders sent tanks to block Bangkok’s Government House and said they’d seized control of the capital on September 19, 2006, the gauge recouped its losses by May 2007. “I am almost always bullish on these markets because, political situations aside, they are where the growth is,” Donald Gimbel, a money manager at Geneva Investment Management of Chicago LLC, which oversees $7 billion, said on November 25. “These are small markets and once money decides they are the right places to go, it doesn’t take much money to move them higher.” Stocks in the three countries are still more expensive than emerging market peers, even after this month’s declines, according to data compiled by Bloomberg. The Philippine gauge is valued at 17 times projected earnings for the next twelve months, while Indonesia has a multiple of 13 and Thailand trades at 12 times. That compares with 11 for the MSCI Emerging Markets Index and 7.8 times for the Hang Seng China Enterprises Index. Thailand’s pension fund is investing in developed markets, Yingyong said. The Standard & Poor’s 500 Index climbed to a record on November 27 as data showed U.S. jobless claims fell while consumer sentiment exceeded estimates. Japan’s Nikkei 225 Stock Average closed at the highest level since 2007 yesterday, while the Stoxx Europe 600 Index touched a five-year high. Thailand’s growth should “remain sluggish for the near future,” Yingyong said. “We are investing more in overseas equities than domestic stocks.”
Abe no friend to emerging bonds as Nikkei leaps most since 1972 Emerging-market bonds are missing their allure among Japanese investors as Prime Minister Shinzo Abe’s stimulus policies drive the largest domestic stock hike in four decades. Investors in the world’s third-biggest economy purchased a net 1.84 trillion yen ($18 billion) of debt in Asia, Latin America, Africa, Eastern Europe and Russia during the first nine months of 2013, Ministry of Finance data show. That is less than half the amount bought in each of the last three years and is on course to be the tiniest yearly total since 2009. “Sales of emerging-market bond funds, which used to be quite popular, have been sluggish,” said Koya Iwabuchi, Tokyo-based general manager of the Investment Trust Marketing Group No. 1 at DIAM Co. Ltd., which oversees 11.8 trillion yen ($115 billion), said in an e-mail interview on Nov. 25. “We introduced two active funds on Japanese equities in May” to meet a pickup in demand for the products, he said. Since Abe took office on December 26, the Nikkei 225 Stock Average has obtained 53 percent and is set for the largest yearly increase since 1972. So-called Abenomics, a mix of fiscal and financial policies aimed at triggering growth and ending 15 years of deflation, weakened the yen 15 percent this year to the benefit of exporters including Toyota Motor Corp. and Panasonic Corp. The measures come just as the U.S. is preparing to rein in stimulus that fueled a flow of funds into developing nations, driving their borrowing costs to a record low in May. Bond Losses Local-currency notes of developing nations have already lost a record 8.4 percent this year in dollar terms, JPMorgan Chase & Co.’s GBI-EM Global Diversified Index shows. To revive an economy that’s averaged 0.6 percent growth in the past 15 years, Abe announced a 10.3 trillion-yen spending boost in January. In April, Haruhiko Kuroda, his handpicked Bank of Japan governor, doubled monthly bond purchases to more than 7 trillion yen in an effort to deliver a 2 percent inflation rate in about two years. Consumer prices excluding food and energy increased 0.3 percent from a year earlier in October, the most in 15 years, data showed today. Toyota’s shares have climbed 59 percent this year, set for the biggest advance since 1999. Asia’s biggest carmaker raised its net income forecast this month by 13 percent for the year ending March 2014. Panasonic, Japan’s largest consumer-electronics maker by market value, doubled its profit estimate last month and the shares have surged 125 percent, headed for the best annual gain on record. Carry-trade returns using the yen as a funding currency dropped in the second half of this year from the first and Japanese money managers have cut holdings of local debt in developing nations. The trades involve borrowing funds in countries with low interest rates and investing the money in higher-yielding assets elsewhere. Carry Trades Benchmark five-year bonds yield 0.18 percent in Japan, compared with 12.48 percent in Brazil, 4.69 percent in Mexico, 9.2 percent in Turkey and 7.88 percent in Indonesia, according to data compiled by Bloomberg. The developing countries’ bond markets are the four most popular with Japanese investors. Yen-funded carry trades involving purchases of Brazilian real returned 3.1 percent to investors since June, down from 7.9 percent in the first half, data compiled by Bloomberg show. Returns for the Mexican peso fell to 3.5 percent from 16 percent, while for the Turkish lira the gain shrank to 2.2 percent from 9 percent. Indonesia’s rupiah swung to an 11 percent loss from a 14 percent return. Less Outflows “If you are a Japanese investor, why would you want to put your money overseas to pick up marginal yields with far higher risks when actually you’ve got much stronger performing domestic markets with no foreign-exchange risk,” Simon Derrick, the London-based chief currency strategist at Bank of New York Mellon Corp., the largest custody bank with $27.4 trillion under administration, said in an interview in Singapore on Nov. 21. “There is less sign of outflows from Japan than there has been in times past.” Assets in the DIAM Japan Value Equity Fund increased about 27 billion yen this year to 33 billion yen, according to data provided by the company. Those in the DIAM Emerging Sovereign Open Class (BRL), which invests in the dollar-denominated bonds issued by developing nations and convert the proceeds into Brazilian real, saw assets drop about 35 billion yen to 98 billion yen. Japanese holdings of Brazilian debt fell 19 percent this year to 1.22 trillion yen in October and reached 1.14 trillion yen in August, the lowest since November 2009, according to theInvestment Trusts Association of Japan. Ownership of Mexico’s debt dropped 17 percent to 252 billion yen from a record 305 billion yen in May, while that for Turkey’s declined 16 percent to 138 billion yen from a peak of 165 billion yen in May. Holdings of Indonesia’s slid 20 percent to 123 billion yen since reaching a record 154 billion yen in May. Yields Rising The yield on developing nations’ local-currency bonds reached a record-low 5.16 percent on May 9 and has since surged 163 basis points, or 1.63 percentage points, to 6.79 percent as of November 28, JPMorgan GBI-EM Global Diversified Composite Yield to Maturity index showed. The 10-year U.S. Treasury yield rose 93 basis points to 2.74 percent in the same period. Japanese funds may step up purchases of emerging-market debt in the second half of 2014 as developing nations’ borrowing costs rise in tandem with U.S. yields, Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore, said in a phone interview on November 26. “Japanese investors are looking for more attractive levels to get in,” he said. “We are still looking at a very gradual and modest recovery” for the developing world next year, Varathan said. Growth Outlook Emerging economies will expand 4.5 percent this year and 5.1 percent in 2014, the International Monetary Fund predicted on October 8. Growth in developed nations is forecast to quicken to 2 percent from 1.2 percent. About $10 billion, or 3.2 percent of assets under management, have been taken out of emerging-market debt funds this year, including $37 billion since May, Rashique Rahman and Vandit Shah, New York-based analysts at Morgan Stanley, said in a November 26 report. Japanese investors will continue to look overseas for investments, though are likely to cut purchases of higher-yielding securities, according to Takahide Irimura, the Tokyo-based head of emerging-market research at Kokusai Asset Management Co., which manages $37 billion, said in a November 27 phone interview. “Fund flows to emerging-market bonds will be more selective than before, and massive inflows into broad emerging-market bond markets will not be repeated until we get a clearer picture of U.S. monetary policy,” he said.
Stocks bolster with Euro on inflation as Oil maintains decline European stocks advance, with the benchmark index achieving a five-year high, while Spanish bonds pulled back on indications of surging inflation in the 17-nation bloc. The euro spiked up versus the yen and the pound soared higher while crude oil held drops down and gold rose. The Stoxx Europe 600 Index increased 0.4 percent to the topmost close since May 2008, and yields on Spanish five-year notes advance six basis points to 2.66 percent. Most Brazilian stocks depreciates while Canadian shares skyrockets as gold increase for the first time in three days in London. The euro moved higher to a four-year high against the yen and the pound reached the best performing financial value since January. West Texas Intermediate oil held near a six-month low and Brent crude relinquished 0.4 percent. Germany's annual inflation rate, computed using a harmonized European Union system, spiked up to 1.6 percent this month from 1.2 percent in October, damping bets the European Central Bank will loosen financial policy. Bank of England Governor Mark Carney said allowances under Britain’s Funding for Lending Scheme will only apply to business lending from 2014 in a move aimed at restraining the U.K.’s house-price boom. U.S. stock and bond markets were shut for Thanksgiving. “The more resilient German inflation is, the higher the hurdle is for more easing from the ECB,” said Eimear Daly, a currency-market analyst at Monex Europe Ltd. in London. “The inflation number from Saxony significantly boosted the euro.” The Stoxx 600 has bolstered 0.9 percent in November, on track for a third monthly increase. The European index has rallied 16 percent this year, compared with a 27 percent climb in the Standard & Poor’s 500 Index. Canadian Stocks Thomas Cook Group Plc rallied 15 percent in London today after the travel operator posted a 49 percent increase in full-year earnings. Rio Tinto Group, the world’s second-biggest mining company, added 3.9 percent after saying it will cost $3 billion less than projected to increase iron ore output capacity. The Standard & Poor’s/TSX Composite Index added 0.1 percent in Toronto as Detour Gold Corp. climbed 14 percent and Iamgold Corp. rose 3 percent. Bullion for immediate delivery rose 0.5 percent in London after falling as much as 0.3 percent, and gold for February delivery added 0.5 percent on the Comex in New York. Platinum gained 0.7 percent. DHX Media Ltd. jumped as much as 38 percent in Toronto after agreeing to buy Family Channel, Disney XD and other channels from Bell Media, a unit of BCE, for about C$170 million in cash. Vale Hikes The MSCI Emerging Markets Index rose 0.4 percent in a second day of gains, with Dubai’s benchmark index jumping 1.6 percent to its highest close in five years. Brazil’s Ibovespa closed little changed as 38 stocks moved lower while 29 climbed. Vale SA, the world’s biggest iron-ore producer, gained 2.7 percent in Sao Paulo, the most in six weeks on a closing basis. The company agreed to pay 22.3 billion reais ($9.6 billion) to settle a decade-long tax dispute with Brazil over profits at its foreign units, ahead of a deadline tomorrow. A gauge of U.K. homebuilders fell 1.6 percent after the Bank of England’s announcement. Barratt Developments Plc lost 4.9 percent and Persimmon Plc slid 6.1 percent. Economic confidence in the euro-area rose more than analysts forecast in November, with an index of executive and consumer sentiment increasing to 98.5 from 97.7 in October, the European Commission in Brussels said today. Consumer prices rose in Spain in November, separate data showed. Spain’s 10-year bond yields were little changed at 4.15 percent, while the rate on similar-maturity German debt slipped to 1.7 percent. Bond Risk Germany’s 10-year break-even rate, a gauge of inflation expectations that measures the yield difference between bonds and index-linked securities, rose two basis points to 1.44 percentage points after closing at 1.42 percentage points yesterday, the least since May 2012. The cost of insuring against losses on corporate bonds touched the lowest level since April 2010. The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies fell to as low as 76 basis points. Futures on the Standard & Poor’s 500 Index expiring next month climbed 0.2 percent after the index rose yesterday to a record. The gauge of U.S. equities has rallied 2.9 percent this month and is on pace for the biggest annual jump since 1997. Exporters led gains in Asian stocks after U.S. data yesterday showed jobless claims in the world’s largest economy fell while consumer sentiment exceeded estimates. Earnings Growth “Asia’s earnings growth does remain largely leveraged to the global economy,” Michael Kurtz, the Hong Kong-based head of global equity strategy at Nomura Holdings Inc., said in an e-mail. “Our economists expect the U.S. economy finally to accelerate to a more robust pace in 2014.” Japan’s Nikkei 225 rose 1.8 percent, the most in a week, as Honda Motor Co., which gets more than 80 percent of its sales outside Japan, advanced 1.5 percent. The euro climbed 0.3 percent, rising a sixth day, to 139.12 yen, the strongest intraday level since June 2009, while the pound gained a third day, adding 0.4 percent versus the dollar. Indonesia’s rupiah weakened 1.1 percent versus the dollar to its lowest closing level in 4 1/2 years. The Australian dollar, known as the Aussie, snapped its longest losing streak versus the greenback since May, rising 0.4 percent to 91.14 U.S. cents. Capital spending increased 3.6 percent from the second quarter, compared with the median forecast in a Bloomberg survey for a 1.2 percent drop. Real Bounces Back Brazil’s real climbed 0.6 percent against the dollar, ending a three-day drop, while swap rates sank. The central bank raised Brazil’s benchmark interest rate to 10 percent from 9.5 percent yesterday, in line with analyst estimates, as a weaker currency and widening budget deficit spur inflation. Brazil’s Treasury said today the government’s primary surplus was 5.4 billion reais in October, trailing the median estimate among analysts for an 8 billion-real surplus. WTI crude fell less than 0.1 percent in electronic trading in New York to $92.25 a barrel, holding at the lowest level since June. A government report yesterday showed stockpiles rose for a 10th week in the U.S., the world’s biggest oil consumer. Brent fell to $110.86 a barrel. Natural gas futures gained 1 percent in a seventh day of gains, the longest rally since January 2011, data compiled by Bloomberg show.
Aussie seen plunging down amid RBA talk of intervention Traders are betting Australia's dollar will continue its largest retreat in five years as policy makers flag that intervention to decline the currency is an option, 30 years after they gave up exchange controls. Contracts giving the power to merchandise the Aussie versus the U.S. dollar have the highest premium over those allowing purchases since September. The bearish bets were at a four-year low last month. The Australian dollar’s 13 percent decline this year makes it the weakest mover after South Africa’s rand and Japan’s yen among 16 major currencies tracked by Bloomberg. While slouching commodity prices and mining investment are weighing on the Aussie, U.S. financial stimulus is acting as a brake on its sagged down, triggering Reserve Bank of Australia Governor Glenn Stevens to say this month he’s “open-minded” about intervention. The currency is 24 percent overvalued, according to an Organization for Economic Cooperation and Development measure that tracks buying-power parity. “You could argue that it’s somewhat expensive relative to fundamentals, as the RBA does, but like the RBA, my view is that those fundamentals will ultimately assert themselves,” Stephen Miller, a Sydney-based money manager at BlackRock Inc., which oversees $3.9 trillion, said in a November 26 phone interview. “I won’t be surprised to see” the Aussie in the “low 80s in a year’s time,” he said, compared with 90.92 U.S. cents as of 11:29 a.m. in New York. Traders Warned Stevens put currency traders on notice November 21 when he said that, while the benefits of intervention haven’t “so far” outweighed the costs, it “doesn’t mean we will always eschew” currency sales. “In fact we remain open-minded on the issue,” he told a forum of economists to mark next month’s 30th anniversary of the free float of Australia’s exchange rate. The nation’s dollar fell to a three-year low of 88.48 U.S. cents on August 5, from $1.0599 on January 10, as the central bank cut its main interest rate by a half-percentage point to a record 2.5 percent. There’s a better than 50 percent chance the RBA will reduce the rate further next year, BlackRock’s Miller said. of 31 economists surveyed by Bloomberg, 22 predict no change to borrowing costs by March. RBA ‘Jawboning’ The policy of allowing the Aussie to trade freely, which resulted in declines of about 20 percent in the wake of the Asian financial crisis of 1997 and the global slump of 2008, is partly responsible for Australia’s unparalleled record of more than 20 years without a recession. Australia’s dollar plunged 30 percent to 63.08 U.S. cents within 17 months of the December 1983 decision to scrap its peg versus a basket of peers to combat speculators betting on gains in the currency. Australia’s relatively high rate, which compares with a target of near zero in the U.S. and Japan, has ensured the nation attracts its share of the money printed by the Federal Reserve to finance its $85 billion of monthly bond purchases. The U.S. central bank will start reducing the stimulus program in March, according to a Bloomberg economist survey. “The market is uncertain and uncomfortable holding long positions in the Aussie at the moment,” Hugh Killen, the Sydney-based global head of foreign exchange at Westpac Banking Corp., said in a November 22 phone interview. “The tone of the Aussie is being set by the RBA’s jawboning and rates outlook, as well as the discussions around the Fed taper that are strengthening the U.S. dollar.” Bounce Due Australia’s dollar is probably due a bounce as it has fallen quickly over a short period and 90 cents is a “big level,” Marianne Winkelman, director of global bond, emerging market and currency trading at Loomis Sayles & Co., said in an e-mailed response to questions received today. “The RBA should be pleased with themselves,” Boston-based Winkelman said. “Aggressive FX intervention is unlikely and unnecessary at current Australian dollar levels. The bank’s verbal intervention had an impact, and they may not have spent a dime.” The Aussie gained as much as 0.8 percent today, snapping six days of declines and climbing from a three-month low, after data showed business investment unexpectedly grew, reducing pressure on the RBA to ease policy. U.S. monetary policy will remain stimulatory compared with Australia, even after bond purchases end, keeping the Aussie above its long-run average, Joseph Capurso, a Sydney-based strategist at Commonwealth Bank of Australia, said on Nov. 27. The Aussie is trading below its five-year average of 94.59 U.S. cents, data compiled by Bloomberg show. Bullish CBA CBA predicts the currency will strengthen to 92 U.S. cents by mid-2014. That makes the nation’s biggest lender more bullish than the median estimate of more than 30 strategists surveyed by Bloomberg, which puts the Aussie at 90 cents by June. Traders are paying the biggest premium among Group of 10 currencies for options betting the Aussie will weaken further, according to data compiled by Bloomberg on 25-delta risk-reversal rates. The premium on one-month contracts to sell the local dollar versus the U.S. currency over those allowing purchases increased to 1.78 percentage points, the highest since September 18. The premium rose from 0.47 percentage points on Oct. 22, the least since October 2009. A weaker currency will help make Australia more competitive as it seeks to end its dependence on mining development in the north and west of the country and boost industries including residential construction in the south and east. The Commodity Research Bureau’s U.S. Spot index fell 4.4 percent this year, the most since 2011. Aussie Overvalued Even after this year’s decline, the Aussie is the fourth most-overvalued of 15 major currencies, according to the OECD measure. Its peak level by this gauge came two years ago. Stevens’s ability to combat the Aussie’s strength through intervention was reinforced last month when the government pledged to inject A$8.8 billion ($8 billion) into the RBA’s reserve fund. The central bank may seek to convert at least A$5 billion of this into foreign currency, UBS AG said in a November 26 client note. “The key issue is definitely the unrelenting effort by the RBA to talk the currency down,” Callum Henderson, the Singapore-based global head of currency research at Standard Chartered Plc, said by phone November 26. “The bar for intervention is very high. It’s a useful potential threat to mention, but it becomes less useful if they actually do it. For the time being, they’ll focus on words.”
Overview:
USD/JPYis going to consolidate with bullish bias after hitting the six-month high of 102.37 Thursday. The liquidity is low as the U.S. financial markets closed early (at 1800 GMT) after Thanksgiving. USD/JPY is underpinned by weak yen sentiment amid expectations that the Bank of Japan will take further easing steps if economic growth stumbles and deflationary pressures return; Japan portfolio-flow data shows that residents bought net Y1,405.6 billion of foreign bonds last week, sharply higher than the Y351.5 billion purchases in the previous week. USD/JPY is also supported by the demand from Japan importers and investment trusts. But USD/JPY gains are tempered by Japan's exporter sales; positions adjustment before weekend.
Technical Comment:
The daily chart positive-biased as MACD is bullish, stochastics stays elevated at overbought; 5- and 15-day moving averages are advancing.
Trading recommendations:
The pair is trading above its pivot point. It is likely to trade in a higher range as far as it remains above its pivot point. As far as the price is above its pivot point, a long position is recommended with the first target at 102.65 and the second target at 102.9. In an alternative scenario, if the price moves below its pivot points, short positions are recommended with the first target at 101.15. The breach of this target will move the pair further downwards and one may expect the second target at 100.95. The pivot point stands at 101.9.
Resistance levels: 102.65 102.9 103.25
Support levels: 101.6 101.15 100.95
The price zone of 1.3400-1.3460 represented a valuable supply zone that kept the price below for months. However, a significant bullish rejection was expressed around 1.3100 leading to a bullish breakout pattern. According to the final readings of the European Statistical Office disclosed two weeks ago, the European inflation was at 1.1% in September, in line with preliminary projections, while it settled at 1.3% in August. This constituted to the recent bullish jump that took place on October 22. Previous daily candlesticks represented indecision around 1.3800 which initiated bearish retracement towards 1.3450 which failed to provide strong support, and then 1.3280 was tested shortly after. Price zone of 1.3280 - 1.3300 provided strong demand for the pair pushing it higher above 1.3400 - 1.3450 (prominent technical levels). Persistence of the current movement to push above 1.3450 level allows the pair to reach the next supply level around 1.3640 where the price action should be watched. Price level of 1.3640 corresponds not only to a prominent high established on October 7, but also to the upper limit of the ongoing bullish channel depicted on the chart. Based on the market analysis, there is a valid sell entry around 1.3600-1.3640 with SL as daily closure above 1.3670.
Five months ago, a prominent bottom was established around 1.0260. This happened after the intensive bearish momentum that led to monthly low at 1.0254. An important key level was located around 1.0505. This was the key level for the previous weeks movement as the re-closure below it enabled the pair to break down 1.0455 as well, where the lower limit of the depicted consolidation range was located. The nearest support zone was located around 1.0250. On September 19, the pair expressed a false breakdown reaching 1.0180 where obvious bullish rejection was expressed to get the pair back above 1.0250 again resulting in a bullish Hammer weekly candlestick. As expected, the bullish momentum was expressed at retesting of the lower limit of the ongoing channel around 1.0280 pushing it higher towards 1.0460, and then 1.0500 which was bypassed last week. The price level around 1.0470 remains the nearest considerable support for the pair. Last week, the pair failed to break down below 1.0400. Instead, the bulls established an ascending bottom around 1.0400 which invalidated our suggested sell position. Daily fixation above 1.0475 enabled the pair to reach 1.0575-1.0600 where a previous top corresponding to July's highest level is located. Price action should be watched carefully for a possible sell position with SL located above 1.0630. Some bearish price action has been expressed since yesterday to be noted.
Strong bullish sentiment was found at the support zone around 1.4830, which pushed the pair to hit 1.5700, where two prominent tops were established untill the bulls initiated another bullish impulse towards 1.6200 where other two prominent tops were established. It is important to note that the market initially expressed a bearish rejection around 1.6200 (127.2% Fibonacci Expansion) which resulted in an Inverted Hammer weekly candlestick. That is why a bearish movement was expected last weeks provided that the bears continue defending the weekly high at 1.6200. However, the lack of bearish momentum enhanced by the weakness of USD allowed the bulls to step above 1.6200 for a short time until bearish domination came again into the market. The pair had to break down the support level located around 1.6040 (100% Fibo Expansion) which already took place shortly after. However, a bullish rejection was manifested around 1.5860 failing to complete the projected targets of the double-bottom pattern. Instead, the bulls are now pushing above 1.6300 trying to challenge the highest level of 2013 around 1.6340. Note that daily fixation above 1.6200 enabled the pair to express the bullish movement towards 1.6300 where 141.2% Fibo expansion and the backside of the depicted broken uptrend are located. A sell entry may be taken around the current levels of 1.6300-1.6330 upon watching proper bearish price action. SL should be set as daily closure above 1.6350. Yesterday's daily closure is located at 1.6340 which means the bulls are in control of the market till the moment. However, a possible bearish reversal towards 1.6230 is expected.
On October 23, the GBP/USD pair broke initially the 1.6200 handle hitting the area of 1.6250. However, most of the bullish gains were lost when the pair established a Double Top reversal pattern around 1.6200-1.6250. Failure to break down the 1.5900 level was observed last week. Instead, bullish rejection led to another bullish swing again toward 1.6200 (127% Fibo Expansion) which was bypassed so far. As depicted on the chart, the current level around 1.6300 corresponds to the multiple previous tops that were established in 2012. Knowing that 2012's high was around 1.6350, the bulls are trying to record new highs before the end of 2013. The current movement is targeting 1.6350 as long as the bulls are defending the newly established demand zone around 1.6200-1.6250. Bypassing 2012's high around 1.6350 will probably initate a strong bullish swing toward 1.6460 initially. The current bullish impulse was initiated last Thursday as the bulls were applying bullish pressure based on their hopes regarding the results of the meeting of the Federal Open Market and the U.S. retail sales which were announced later on the day. Price zone of 1.6325-1.6350 remains a significant supply "resistance" for a possible bearish entry with SL as daily closure above 1.6350.
Stevens states that RBA ‘Open Minded’ on FX Intervention The local dollar traded as low as 48 U.S. cents in 2001 and as high as $1.10 ten years later. “For most of the floating era, until recently at least, a currency that seemed prone to weakness seemed more frequently a problem than the reverse,” Stevens said yesterday. Banana Republic One of the Aussie’s most famous depreciations came in 1986. As exports collapsed because of weak international commodity prices, then-Treasurer Paul Keating warned the nation risked becoming a “banana republic” if it failed to change. His comments prompted lawmakers to tackle inefficiencies in the economy, encourage innovation and boost productivity, spawning new businesses in education, technology and tourism. “Over the past thirty years, the exchange rate has on occasion been the subject of excitement, concern, even shock,” Stevens said. “It has acted as a shock-absorber, as intended, but it has also served as a disciplining constraint at times. Generally speaking, that was good for us.”
Hedge fund gold bets less bullish as Paulson holds: Commodities Hedge funds got less bullish on gold, trimming down their net-long position to a four-month low, before prices capped the largest weekly pullback since September. Net holdings in futures and options plunged down 20 percent to 44,291 contracts in the week ended November 19, the weakest since July 9, U.S. Commodity Futures Trading Commission data show. Short bets climbed 16 percent to the topmost since August 6 and long wagers missed 2.5 percent. Net-bullish wagers across 18 U.S.- traded commodities dropped down 12 percent as investors became the most bearish on copper since July and trim their silver holdings by the most in five months. Gold relinquished 6.1 percent this month, heading for the worst slide since June, when the metal touched a 34-month low. The Federal Reserve signaled November 20 that it may ease stimulus in coming months. Billionaire John Paulson told customers the same day he personally won’t invest more money into his gold fund because it’s not clear when inflation will quicken. The U.S. cost of living dropped in October for the first time since April, while wholesale financial values tumbled for a second month. “With the Fed perhaps stepping back, it’s hard to make a case for inflationary behavior out there,” said Jeffrey Sherman, a money manager who helps oversee $53 billion at DoubleLine Capital LP in Los Angeles. “People aren’t as worried about inflation, thus you’re not seeing people buying gold.” Gold Bears Futures dropped 3.3 percent last week, the biggest slide since September 13. Prices fell to a four-month low on November 21 after Fed minutes released a day earlier showed policymakers project enough strength in the labor market to warrant slowing bond buying. Nineteen analysts surveyed by Bloomberg News expect prices to fall this week, nine are bullish and three neutral, the largest proportion of bears since June 21. Gold slumped 26 percent this year to $1,242.80 an ounce on the Comex in New York, heading for the biggest annual loss since 1981. The Standard & Poor’s GSCI gauge of 24 commodities dropped 3.4 percent. The MSCI All-Country World Index of equities climbed 18 percent, while the Bloomberg Dollar Index, a gauge against 10 major trading partners, rallied 3.3 percent. The Bloomberg Treasury bond Index retreated 2.4 percent. Billionaire Paulson, who had so much conviction in gold that he used the SPDR Gold Trust exchange-traded product to start share classes for his funds denominated in bullion, told clients last week that he personally wouldn’t invest more money, according to a person familiar with the matter. Paulson, Soros Paulson’s sentiment echoes other investors who have lost faith in the metal as a store value. Global ETP holdings have dropped to the lowest since April 2010, with more than $73 billion erased from their combined value since the peak in October 2012, data compiled by Bloomberg show. Billionaires George Soros and Daniel Loeb sold their entire investments in the SPDR Gold Trust in the second quarter, U.S. government filings showed. Prices tumbled into a bear market in April. Gold may slide to $1,050 by the end of next year, Goldman Sachs Group Inc. said in a report Nov. 20. The bank said it’s projecting “significant” declines through 2014. The metal climbed 70 percent from December 2008 to June 2011 as the Fed expanded its balance sheet through debt purchases, fueling the outlook for rising inflation. Four of five investors expect the Fed to delay a decision to taper until March or later, with just 5 percent looking for a move next month, according to the latest Bloomberg Global Poll. ‘Exhausted’ Sellers “Fundamentally, it strikes me the monetary policy remains extremely positive and accommodating for gold,” said Adrian Day, who manages about $135 million of assets as the president of Adrian Day Asset Management in Annapolis, Maryland. “The sellers have to get exhausted. I’m not sure we’re at that point yet, but I think we’re very close.” Janet Yellen, nominated to be next chairman of the Fed, signaled during her Nov. 14 testimony to the Senate Banking Committee that she’ll continue with quantitative easing until there’s a robust recovery. The European Central Bank this month lowered its benchmark interest rate to a record low of 0.25 percent, citing the possibility of a prolonged period of low inflation. The cost of living in the U.S. fell 0.1 percent in October, a Labor Department report showed Nov. 20. The producer-price index slumped 0.2 percent last month, after a 0.1 percent drop in September, a separate report showed the next day. Gold tumbled 35 percent since reaching an all-time high of $1,923.70 in September 2011. U.S. inflation is running at 1 percent, half the rate of the past decade. Expectations for increasing costs as measured by the break-even rate for five-year Treasury Inflation Protected Securities fell 12 percent this year. Bears Advance Speculators cut their net-position in gold by 56 percent in the three weeks through Nov. 19, the biggest such decline since June 2007. Short bets climbed for three straight weeks, the longest advance for bears since July. Long holdings reached 106,800 contracts, the lowest since July 2012. Bullish bets on silver declined 52 percent to 4,657 contracts, the lowest since August, the CFTC data show. Silver prices slumped 4 percent to $19.901 an ounce in New York last week, the fourth weekly drop and the longest stretch of losses since April. Speculators almost tripled their net-short bets on copper to 24,067 contracts, compared with 8,117 a week earlier. That’s the most negative outlook since July 30. Output of the refined metal in China, the world’s largest user, climbed 23 percent to a record 637,000 metric tons in October from a year earlier. A measure of speculative positions across 11 agricultural products dropped 19 percent to 293,785 contracts, the lowest since September 17, the CFTC data show. The S&P’s Agriculture Index of eight commodities is down 20 percent this year. Corn, Sugar Money managers held a net-short position in corn of 146,086 contracts, compared with 139,060 contracts a week earlier. Sugar holdings fell 18 percent to 136,545 contracts, the biggest decline since early September, and cotton wagers dropped for the seventh straight week. Farmers in the U.S., the world’s biggest corn grower, are projected to produce a record 13.989 billion bushels of the grain this year. Soybean output will be 3.258 billion bushels, the third-biggest ever, government forecasts show. Global food costs tracked by the United Nations are 14 percent below the all-time high set in February 2011. “We’re seeing much better supply in the grain space,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $112 billion of assets. “For base metals, in particular for copper, it’s going to take a few more months of much better demand to start to absorb the excess supply.”
Europe twin woes intensify in Draghi job-to-inflation fight His predecessor in the job, Jean-Claude Trichet, said the ECB’s decision to cut rates was “a right one.” “It is perfectly legitimate that central banks are guarding themselves for deflation as well as from inflation,” Trichet told reporters in London on November. 21. “I don’t trust there is a real risk, but you have to guard in any case.” Masked Divergence The inflation rate masks considerable divergence across the euro region. In Germany, Europe’s biggest economy, annual consumer prices increased 1.2 percent in October, in Italy inflation was 0.8 percent and in France it was 0.7 percent. In contrast, Greek prices slumped 1.9 percent from a year earlier. “The biggest core country is taking a different course than the periphery,” said Jens-Oliver Niklasch, a fixed-income strategist at Landesbank Baden-Wueemberg in Stuttgart. Even so, he sees inflation back above 1 percent within the next year. ECB staff projections in September showed inflation at 1.3 percent in 2014. Next month’s forecast will incorporate the results of their twice-yearly consultation with euro-area central banks. Draghi pledged this month that the outlook will provide a “fuller picture” on just how long officials see insufficient inflation persisting. Stabilizing Joblessness The ECB president also said at this month’s decision that unemployment currently “looks like it is stabilizing” though “stabilizing at the top.” He reiterated on Nov. 21 in a speech surveying euro-area monetary and political efforts to foster growth that “for the sake of those who remain unemployed, we have to persevere.” This week’s jobless data may underline the significance of that mission. Only one economist out of 34 surveyed predicts a drop in the unemployment rate, and two see it increasing to 12.3 percent. Giada Giani at Citigroup Inc. predicts the rate in Draghi’s home country of Italy will reach a record 12.6 percent, more than double the comparable measure for Germany. With evidence on the euro-zone’s inflation and jobless predicaments published less than a week before the central bank officials’ forecast is presented, the ECB is wondering how it might respond with further action to aid an economy that expanded just 0.1 percent in the third quarter. Bloomberg News reported last week that policy makers are considering a smaller-than-normal cut in the deposit rate to minus 0.1 percent if more stimulus is needed to ward off deflation. For now, economists say the ECB won’t do anything when policy makers meet on Dec. 5. While a majority in a Bloomberg survey say the ECB’s most probable next move will be new liquidity injections such as long-term loans, 77 percent of those see it happening in the first or second quarter of 2014. Just 9 percent see Draghi taking action in December. “You can’t say that the ECB was wrong in cutting rates, even if it was a somewhat peculiar move on its part” said Marco Valli, chief euro-area economist at UniCredit SpA in Milan. “In December they won’t do anything, they will just present their updated predictions.”
Oil depreciates on Iran deal as stocks surge; Yen retreat Crude oil poised for the largest decline in three weeks after Iran agreed to limit its nuclear program in exchange for relief from some sanctions. Asian stocks jumped, while the yen pulled back to its lowest since May. Brent crude dropped 2.3 percent to $108.53 a barrel by 10:29 a.m. in Tokyo. Futures on the Standard & Poor’s 500 Index, which capped a seventh weekly gain November 22, bolster 0.3 percent. The MSCI Asia Pacific Index added 0.6 percent, while credit risk in the region missed. The yen depreciated as much as 0.5 percent to 101.81 per dollar while Thailand’s baht slid amid protests in Bangkok. Iran agreed yesterday to curtail its nuclear activities in return for easing of some sanctions on oil, auto parts, gold and precious metals, the first major crack in a decade-long deadlock. U.S. job openings climbed to a five-year high in September, data Nov. 22 showed, while a report today is projected to show pending home sales rebounded last month. Bank of Japan Governor Haruhiko Kuroda speaks today before data this week forecast to show inflation is accelerating amid unprecedented monetary easing. “While Israel and the Saudis won’t be happy, the oil bears will,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by e-mail today. Brent fell from a six-week high and West Texas Intermediate oil declined 0.9 percent. Sales Capped Oil exports from Iran will be held at about 1 million barrels a day under sanctions that remain in force after the nation and six world powers came to an agreement in Geneva, according to the White House. The sanctions have cut Iranian crude sales by 60 percent since the start of 2012, depriving the country of more than $80 billion in revenue, U.S. President Barack Obama’s administration said in a statement. “This certainly sets the table for lower prices in the future,” said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania “But we’ll have to wait and see how much of this has already been priced in.” Gold lost as much as 0.5 percent to $1,237.45 an ounce following last week’s 3.6 percent decline, the steepest weekly slump since September. Silver backslide 0.7 percent today, reaching the lowest price since August 8. Yen Declines “There’s a risk-on sentiment in the market after the Iran deal,” said Toshiya Yamauchi, a senior analyst in Tokyo at Ueda Harlow Ltd., which provides margin-trading services. The yen dropped 0.5 percent to 101.75 per dollar and touched 101.81, the weakest level since May. Japan’s statistics bureau will the nation’s consumer prices excluding fresh food rose 0.9 percent last month from a year earlier, the strongest advance since 2008, according to the median estimate of economists surveyed by Bloomberg News before data due November 29. The Bank of Japan said in April it wanted to achieve 2 percent inflation in about two years. The Thai baht fell 0.4 percent to 31.93 per U.S. dollar as anti-government groups pledged to spread their protest to military bases, government offices and television stations today after more than 100,000 people joined rallies to oust Prime Minister Yingluck Shinawatra. The won added 0.2 percent to 1,058.80 per dollar in a second day of gains. New Zealand’s dollar, known as the kiwi, rose 0.2 percent 82.11 U.S. cents. Rial Surges Iran’s currency, the rial, appreciated 2.3 percent yesterday to 29,300 per dollar in Tehran, according to prices provided by five street traders in the nation’s black market. The rial lost more than half its value in the year before President Hassan Rouhani’s election in June. The cost of protecting bonds from non-payment in the Asia-Pacific region declined. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan dropped 3 basis points to 129 basis points, Australia & New Zealand Banking Group Ltd. prices show. The benchmark is set for its biggest one-day fall in a week and its lowest close since September 23, according to data provider CMA. Yields on 10-year Treasury notes rose two basis points, or 0.01 percentage point, to 2.76 percent, after falling four basis points November 22. Australian government bonds due in a decade rose a second trading day, pushing yields down two basis points today to 4.30 percent. The Topix increased 0.7 percent, holding at the highest closing level since May. Australia’s S&P/ASX 200 Index rose 0.5 percent today after the gauge slid 1.2 percent last week in its second weekly decline in November. The Kospi Index in Seoul jumped 1 percent.
Asian stocks skyrocket after Yen decline, Iran nuclear agreement Bank of Japan Governor Haruhiko Kuroda, who speaks in Tokyo today, helped drive a 45 percent surge in Japan’s Topix index this year. Kuroda maintained the central bank’s monetary easing as he and Prime Minister Shinzo Abe sought to jolt the nation out of 15 years of deflation. The Topix is the best performing index of 24 developed markets tracked by Bloomberg. Futures on the S&P 500 today advanced 0.3 percent today, after last week closing at a record high and capping a seventh week of gains. The Dow Jones Industrial Average, also rose for a seventh week, its longest streak of such gains since January 2011
Overview:
Since our last analysis, Gold has been trading downwards, like we expected. The price tested the level of 1,227.37 on high volume. We expect more bearish continuation. In the daily chart, we can observe no demand bar on volume below the average, which means that Gold may continue with bearish continuation. We are still likely to see it testing the weekly FE level of 161.8% (Weekly third target) at the price of 1,151.00. The current situation in (4H) is that we have got buying climax on upward leg and the broken channel, which is the sign that Gold may continue the downward movement. Since we are in the short-term downtrend in the daily chart, buying Gold looks very risky and I advise you to watch for selling opportunities.
Daily pivot Fibonacci points:
Resistance levels: R1: 1,242.71
R2: 1,243.85
R3: 1,245.68
Support levels:
S1: 1,239.05
S2: 1,237.91
S3: 1,236.08
Trading recommendation: Operating with the metal, be careful with short-term buying and look for selling opportunities. My recommendation for a downward short-term target is to place it at 1,151.00.
The previous bullish swing targeted 127% Fibonacci Expansion level when the bulls stepped above 1.6035 recording a daily high at 1.6262, which is 70 pips higher than 127.2% Fibonacci Expansion level. On October 23, the GBP/USD pair broke initially the 1.6200 handle hitting the area of 1.6250. However, most of the bullish gains were lost when the pair established a double top reversal pattern around 1.6200-1.6250. That is why a valid sell entry was suggested at 1.6200 which went in our direction towards the neckline around 1.5900. Failure to break down the 1.5900 level was observed last week. Instead, bullish rejection led to another bullish swing towards 1.6040-1.6060 again which was bypassed so far. The current movement as long as fixation above the Demand Zone around 1.6000-1.6040 is the targeting 1.5720 where 127.2% Fibonacci Expansion Level is located. The performance of the U.S. dollar during Thursday's consolidation has been variable; as the bulls were applying bullish pressure based on their hopes regarding the results of the meeting of the Federal Open Market and the U.S. retail sales which were announced later on the day. On Friday, the bulls broke above 1.5720 expressing daily closure at 1.6220. However, the previous daily candlestick was a Hanging Man indicating a possible bearish retracement off the current levels towards 1.6040-1.6000. Price zone 1.6200-1.6230 remains a significant supply for a possible bearish entry with SL located above 1.6250.
The price zone of 1.3560-1.3600 represented a valuable supply zone that kept the price below for almost two months. However, lack of bearish follow-up was witnessed around 1.3480. Instead, a significant bullish rejection was expressed leading to a Flag continuation pattern. According to the final readings of the European Statistical Office disclosed one week ago, the European inflation was at 1.1% in September, in line with preliminary projections, while it settled at 1.3% in August. This constituted to the recent bullish jump that took place on October 22. Previous daily candlesticks represented indecision around 1.3800 strongly suggesting bearish retracement towards 1.3700 and then 1.3650 which took place shortly after. The price zone extending between 1.3550-1.3460 was considered as a valuable supply zone. This zone failed to provide a strong support. Instead, bearish breakdown took place with a quite strong momentum leading to breakdown of 1.3400 as well. Price zone 1.3300-1.3330 provided strong demand for the pair pushing it higher above 1.3400 - 1.3450 (prominent technical levels) Persistence of the current movement to get above the 1.3450 level, allowed the pair to reach the next supply level around 1.3560-1.3600 where the price action should be watched. Based on the market analysis, there is a valid sell entry around 1.3560-1.3600 with SL located above 1.3660. However, today's daily closure should be watched as a daily closure above 1.3580 opens the way for further bullish targets around 1.3650, and then 1.3700.
Strong bullish sentiment was found at the support zone around 1.4830, which pushed the pair to the upside to hit 1.5400, and then 1.5700, where two prominent tops were established. Bullish pressure was applied to the area of 1.5430-1.5400 which managed to break through 1.5720, thus matching the August highest level and the recently established top. The market showed an obvious closure above 1.5575 which opened the way towards 1.6000, 1.6170, and then 1.6260. It is important to note that the market expressed bearish rejection from 1.6150-1.6200 which resulted in an Inverted Hammer weekly candlestick. That is why a bearish movement was expected last week provided that the bears continue defending the weekly high at 1.6150. However, the lack of bearish momentum enhanced by the weakness of USD allowed the bulls to step above 1.6200 (127.2% Fibo Expansion) for a short time until bearish domination came back into the market. The pair established a Double Top reversal pattern around 1.6180-1.6200 which provided a valid sell entry, its neckline is located around 1.5900. The pair had to break down the support level located around 1.6040 (100% Fibo Expansion). However, a bullish rejection was manifested around 1.5860 failing to complete the projected targets. Instead, the bulls are pushing today towards 1.6200 trying to test the recent high around 1.6250. Daily fixation above 1.6200 will enable the pair to express bullish movement towards 1.6290 initially where 141.2% Fibo Expansion is located. A sell entry can be taken there upon watching proper bearish price action. SL should be set as daily closure above 1.6300.
Five months ago, a prominent bottom was established around 1.0260. This happened after the intensive bearish momentum that led to 1.0254. An important key level was located around 1.0505. This was the key level for the previous weeks' movement as the re-closure below it enabled the pair to break down 1.0455 as well, where the lower limit of the depicted consolidation range was located. The nearest support zone was located around 1.0250. On September 19, the pair expressed a false breakdown reaching 1.0180 where obvious bullish rejection was expressed to get the pair back above 1.0250 again resulting in a bullish Hammer weekly candlestick. As expected, bullish momentum was expressed at retesting of the lower limit of the ongoing channel around 1.0280 pushing higher towards 1.0460, and then 1.0500 which was bypassed last week. The price level around 1.0470 remains the nearest considerable support for the pair. Last week, the pair failed to break down below 1.0400. Instead, the bulls established an ascending bottom around 1.0400 which invalidated our suggested sell position. Daily fixation above 1.0475 enabled the pair to reach 1.0575 where a previous top corresponding to July's highest level is located. Price action should be watched carefully for a possible sell position with SL located above 1.0610.
