Asian stocks mostly higher after U.S. data; Nikkei down 0.09%

Most Asian stocks traded higher as traders view some slack U.S. real estate data out last Friday as a sign the Federal Reserve may be forced to hold back on imminent tapering of its bond-buying efforts. 

In Asian trading Monday, Japan’s Nikkei 225 fell 0.09% as USD/JPYtraded slightly lower. USD/JPY touched a three-week high late last week as the yield gap between U.S. Treasuries and comparable Japanese government bonds rose to the highest levels since March 2012. 

Hong Kong’s Hang Seng jumped 1.12% while the Shanghai Composite added 1.10%. U.S.-listed Chinese stocks have surged in the past 60 days amid several calls China is cheap on a valuation basis. 

Chinese shares have also been helped by the fact that other emerging markets currencies, including India’s rupee and Indonesia’s rupiah, have plunged. Weak emerging markets currencies have weighed on bonds and stocks in those countries, but the Chinese yuan has been comparatively strong. 

Australia’s S&P/ASX 200 added 0.20% ahead of what could be a volatile for Australian equities with the looming release of several critical data points. 

New Zealand’s NZSE 50 rose 0.44% Earlier Monday, Statistics New Zealand said the country’s trade balance fell to a seasonally adjusted NZD774 million last month from NZD414 million in June. Analysts expected a decline to NZD50 million last month. 

In U.S. economic news out last Friday, the Commerce Department said new home sales dropped 13.4% last month to an annual rate of 394,000 units. That is the lowest reading in nine months. In July, the median price for a new home sale rose to $257,200, up from $237,400 in the same month of 2012, according to Reuters.

Singapore’s Straits Times advanced 0.54%. South Korea’s Kospi climbed 0.91%. Along with Chinese shares, South Korean stocks are among Asia’s cheapest on valuation. 

S&P 500 futures inched up 0.07%. The benchmark U.S. index rose 0.60% last week. 

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USD/JPY Outlook August 26-30

The US dollar was broadly stronger last week, and USD/JPY climbed about 120 points. The pair closed the week slightly below the 99 line, at 98.87. The upcoming week features eight events. Here’s an outlook for the Japanese events and an updated technical analysis for USD/JPY.

Weak Japanese trade balance numbers hurt the yen last week, as Japan’s trade deficit jumped in July, hitting a four-month high. The US dollar also got a boost from the FOMC minutes, as it’s clear that the Fed plans to taper QE, although the Fed isn’t letting on when it is considering taking action.

USD/JPY daily chart with support and resistance lines on it. Click to enlarge: 

1. CSPI: Sunday, 23:50. This corporate inflation index has shown improvement pointing to some inflation in the Japanese economy after years of deflation. The index posted a gain of 0.4% in the July release and an identical gain is expected in August.
2. Retail Sales: Wednesday, 23:50. This event is the most important indicator of consumer spending, which is critical for economic growth. The indicator posted a strong gain of 1.6% in July, but the markets are expecting a sharp downturn, with an estimate of just 0.0%. Will the indicator surprise the markets with another solid gain?
3. Manufacturing PMI: Thursday, 23:15. Manufacturing PMI continues to post releases above the 50-point line, indicating expansion in the Japanese manufacturing sector. The markets will be looking for another reading above 50 in the August release.
4. Household Spending: Thursday, 23:30. This important consumer spending indicator has run into some trouble, posting two straight declines. The markets are expecting some improvement in the upcoming release, with an estimate of 0.4%. Will the indicator move into positive territory in the upcoming release?
5. Tokyo Core CPI: Thursday, 23:30. Tokyo Core CPI is the most important Japanese inflation indicator. It has been steadily improving and posted a gain of 0.3% in the July release. The upward trend is expected to continue, with an estimate of 0.4% for the August release.
6. Preliminary Industrial Production: Thursday, 23:50. This important manufacturing indicator has been very inconsistent, resulting in estimates which are often off the mark. After a disappointing decline of -3.3% last month, the markets are expecting a strong gain of 3.9% in August. Will the indicator meet or beat this rosy prediction?
7. Housing Starts: Friday, 5:00. Housing Starts have looked very strong lately, with double-digit gains in the past two releases. The markets are expecting another sharp gain in August, with an estimate of 14.5%.

*All times are GMT

USD/JPY Technical Analysis

USD/JPY started the week at 97.67. The pair dropped to a low of 97.32, but the dollar flexed some muscle as  USD/JPY climbed close to the 99 line, touching a high of 98.92. The pair closed the week at 98.97, as support at 98.90 (discussed last week) remains intact.

Live chart of USD/JPY:

Technical lines from top to bottom

We start with resistance at the round number of 104. This line was a key line in May 2008. At that time, USD/JPY was in the midst of a rally which saw the pair climb as high as 110.

102.50 was an important resistance line in late May but has been quiet since that time.

101.44 was the post-crisis high seen in April 2009, and has not been tested since mid-July. 100.85 was busy in July as the dollar pushed above the 100 level.

The significant 100 level saw a lot of activity in July. With the pair testing the 99 level last week, it cannot be considered safe.

98.90 was breached last week but remained intact at week’s end as a resistance line. It could be tested by the pair early in the week.

97.80 was quite busy in June and in late July. It has reverted to a support role as the pair recorded strong gains last week.

96.71 continues to provide support. It has some breathing room with USD/JPY trading at higher levels.

The round number of 95 is a psychologically significant line. It continues to provide support and was last tested in mid-June.

93.79 marked the low point of a rally by the dollar which started in mid-June and saw the pair climb to the mid-101 range in July.

92.86 saw action in early March and again in early April. The latter date marked the low point of a yen rally which saw USD/JPY climb very close to the 100 level.

We are bullish on USD/JPY

As QE tapering is a dollar-positive event, continued speculation about when the Federal Reserve might take action has boosted the US dollar. The Federal Reserve hasn’t shown its cards, but the markets are looking for some action on this front as early as September. Japanese releases looked sluggish last week, and a repeat performance would likely result in the yen losing even more ground.

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GBP/USD Outlook August 26-30

GBP/USD started the week with gains, but ended the week with modest losses. The pair closed the week at 1.5563. The upcoming week has just five events on the schedule. Here is an outlook of the events and an updated technical analysis for GBP/USD.

The UK posted solid manufacturing and GDP data last week, but the pound failed to take advantage against the broadly stronger US dollar. In the US, weak employment and housing data didn’t dampen enthusiasm for the dollar, as the FOMC minutes confirmed that QE tapering is only a matter of time.

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

1. CBI Realized Sales: Wednesday, 10:00. This index is based on a survey of retailers and wholesalers, and is an important indicator of consumer spending. The index jumped from +1 to +17 points last month and the markets are expecting more good news in the upcoming release, with an estimate of +20 points.
2. BOE Governor Mark Carney Speaks: Wednesday, 11:45. Carney will speak at a conference in Nottingham. Analysts will be monitoring his remarks, looking for some clues as to the BOE’s future monetary policy. A speech which is more hawkish than expected is bullish for the pound.
3. Gfk Consumer Confidence: Thursday, 23:01. Consumer Confidence has been improving in recent releases, but remains deep in negative territory. The previous release came in at -16 points and the estimate for the August release calls for a slight improvement, at -13 points. Consumer confidence will have to improve substantially if the UK economy is to get back on its feet.
4. Nationwide HPI: Friday, 6:00. Last month, this housing inflation indicator had its best showing since last August, posting a strong gain of 0.8%. The markets are anticipating a respectable gain of 0.6% in the upcoming release.
5. Net Lending To Individuals: Friday, 8:30. This indicator is closely correlated to consumer confidence and spending, as an increase in lending points to consumers who wish to spend more and are comfortable borrowing money. The indicator increased nicely to 1.5 billion pounds last month, up from 1.0 billion. The markets are expecting the upward trend to continue, with an estimate of 1.7 billion pounds for the August release.

Live chart of GBP/USD: 

GBP/USD Technical Analysis

GBP/USD opened the week at 1.5624. The pair climbed to high of 1.5717 but then reversed direction, dropping to a low of 1.5539. GBP/USD closed the week at 1.5563, as support at 1.5550 (discussed last week) held firm.

Technical lines from top to bottom:

We start with resistance at 1.6154 , which was last tested in January. This line marked the high point as the GBP/USD went on a sharp slide which saw the pound drop below 1.49.

1.5962 saw a lot of activity in February and March 2012 and has stayed in place since mid-January.

1.5832 was busy in late January and has remained in place as a resistance line since February. 1.5752 was last breached in June, marking the peak of a rally by the pound which started in May.

1.5648 saw a lot of activity in June and continues to provide resistance. This line was breached as the pair moved higher early in the week, but remained intact at the end of the week.

1.5550 saw action in mid-June, as GBP/USD pushed past this line and climbed as high as the mid-1.5750 range. It was briefly breached as the pair dropped sharply, but remained intact at the end of the week. This line could be tested early next week.

1.5484 was breached in June, as the pound went on a sharp skid that saw it drop below the 1.49 line.

1.5350 continues to provide support. This line saw some action in the first week in August, when the pound started a rally that saw it climb above the 1.57 line.

1.5258 is the next line of support. 1.5196 saw action in mid-July and again in the first week of August.

1.5110 was busy in July but has had a quiet August as the pair continues to trade at higher levels.

1.5000 is the final support level for now. It is a critical support line, and has remained in place since early July.

I am bullish on GBP/USD.

The pound lost ground this week despite some strong UK data and disappointing numbers out of the US. With the markets fixated on QE tapering, the US dollar has looked sharp against the major currencies, as QE tapering is a dollar-positive event. Market sentiment remains positive on the US economy, so the dollar could post further gains against the dollar this week.

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EUR/USD Forecast August 26-30

EUR/USD advanced to a new 6 month high but eventually retreated back to range. Can it continue advancing? German Ifo Business Climate, employment data as well  as German inflation data are the main events on our calendar this week. Here is an outlook on the main market-movers and an updated technical analysis for EUR/USD.

Last week German and Eurozone PMIs proved once again that the Eurozone is out of recession. Germany beat expectations with strong Services and Manufacturing PMIs leading the euro-zone to expansion. The main disappointment came from France with weaker than expected PMI readings. However all in all, the euro-area is on the right direction. In the US, the FOMC meeting minutes strengthened the notion that tapering is coming, but not all is well in the US.  Let’s Start

Updates:

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

1. German Ifo Business Climate: Tuesday, 8:00. German business confidenceincreased for the third consecutive month in July, reaching 106.2 from 105.9 in June, slightly lower than the 106.3 forecasted by analysts. The recent upbeat suggests German economy is recovering. German unemployment unexpectedly dropped in June and was the first euro-area manufacturing to show expansion in two years in July. Business climate is expected to reach 107.1 this time.
2. GfK German Consumer Climate: Wednesday, 6:00. German consumer sentiment soared to a fresh six-year high in July, rising to 7.0 points from 6.8 in June, higher than the 6.9 reading projected by analysts. This rise was aided by robust employment and a moderate inflation boosting consumption and growth. However Germany’s recovery will have its setbacks due to persistent recessions in fellow Euro-area countries. A further rise to 7.1 is forecasted.
3. German Import Prices: Wednesday, 6:00. Germany’s import prices continued to decline in June, falling 0.8% compared with a 0.4 percent fall in May. The reading missed predictions for a 0.4% gain. On a yearly base, import prices declined 2.2% in June, following a 2.9% drop in May. The pace of decline, however, was the tamer in four months. A gain of 0.3%  is anticipated now.
4. M3 Money Supply: Wednesday, 8:00. The Eurozone seasonally adjusted annual M3 index dropped to 2.3%in June compared to 2.9% in May, missing analyst’s median estimates of 3.0%. A 2.0% rise is predicted this time.
5. German CPI: Thursday. Preliminary data revealed inflation increased by 0.5% in June due to higher food costs attributed to a cold winter, floods which swept through eastern and southern Germany in June and a heat wave. The rise was higher than the 0.3% increase anticipated and followed a 0.1% gain in May. A further rise of 0.2% is expected.
6. German Unemployment Change: Thursday, 7:55. The number of unemployed in Germany dropped unexpectedly by 7,000 in July, leaving unemployment rate close to its lowest level since the Eurozone formation. The improvements in hiring and salaries indicate private consumption will continue to support growth in the coming months. Another drop of 5,000 unemployed is anticipated.
7. German Retail Sales: Friday, 6:00. German retail sales fell by 1.5% in June, the biggest drop this year. Household spending failed to boost growth in the second quarter. On an annual basis, the retail sales fell 2.8%, their largest drop in 2013. This decline was preceded by a 0.7% gain in the previous month. Nevertheless, consumer confidence remained strong. A gain of 0.5% is forecasted.
8. Italian Monthly Unemployment Rate: Friday, 8:00. Italy’s unemployment rate remained near a record high in June with a mild drop to 12.1% from 12.2% in May. Companies did no hiring amid the country’s recession. The reading was worse than the 12.3% estimated; unemployment remained above 10% for a 17th month. Italian Government plans to pass a second package of measures for youth employment later this year to boost hiring. A rise to 12.2% is projected.
9. CPI Flash Estimate: Friday, 9:00. The Eurozone inflation rate reached 1.60% in July according to market predictions. The main components measures for the CPI Index include: food, alcohol and tobacco, energy, non-energy industrial goods and services.
10. Unemployment Rate: Friday, 9:00. The eurozone labor market continues to suffer a large scale unemployment and rampant youth joblessness. The number of unemployed declined slightly in June but unemployment rate remained unchanged at 12.1%. Analysts expected a worse reading of 12.2%. However, June’s small drop in unemployment can also mean a turn for the better for the Eurozone’s beaten economy.

*All times are GMT

EUR/USD Technical Analysis

Euro/dollar started the week under the 1.3350 line, and eventually continued higher. It then broke the critical 1.3415 line (mentioned last week) and traded at a 6 month high. This line was lost and served as resistance. The pair eventually closes at 1.3381..

Technical lines from top to bottom:

1.37 was the 2013 peak, and is still far. 1.3590 capped EUR/USD back in February and is minor resistance.

1.3520 was a swing high in February, before the pair tumbled down. 1.3450 is the new peak of August 2013 and serves as the next resistance line.

1.3415 was the peak back in June and serves as a strong line of resistance, also after the break. 1.3350 provided support when the pair traded higher in February and weakens now.

1.33 worked as support during late August 2013 and remains relevant. It is followed by 1.3240, which capped the pair in April and also had a role in August.

1.3175 capped the pair during July 2013 and works as another line of defense for any moves to the downside. It proved its strength 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.

It is followed by 1.3050, which proved be strong support in May 2013, defending the round number in more than one occasion, but it is less significant now.

The very round 1.30 line was a tough line of resistance. In addition to being a round number, it also served as strong support and recently worked as a pivot line. 1.2940 is the next line of support. It worked as such during April and May 2013.

Uptrend support and resistance

Since mid July the pair trading along an uptrend support line, which it touched three times but it now moved away from this line. Since late July, we can also spot uptrend resistance.

I am neutral on EUR/USD

Another call for a third Greek bailout, this time by the head of the Eurogroup, didn’t move the euro, which remains strong and prefers to look at the positive German data. Also the emerging markets bond rout indirectly supports the euro.

Also the dollar has support of its own: from the growing notion that the Fed will begin tapering in September, perhaps by $15 billion. Currently a “Septaper” is a close call for the Fed and the markets. In the last days of summer, we could see some more volatility, but no clear choice of direction.

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