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The indication that a debt deal had been struck by members of both parties in the US Congress had initially driven the value of the US dollar (USD) higher in trading yesterday morning. Highly symptomatic of the emotional negotiation process, however, the size and scope of the agreement was released separately by the Republican leadership and Democratic White House with minor discrepancies in its size. The result has been a pull away from the greenback until further details of the plan surface.
The US dollar (USD) was seen decreasing late yesterday. The greenback had found moderate strength in the morning hours, but soon pared its gains after discrepant details about the recent debt deal were released by the White House and Congress. The value of safe-haven assets like the Swiss franc (CHF) and Japanese yen (JPY) have been buoyed by a shift away from higher yielding assets. The dollar saw significant losses to both in late trading yesterday and appears poised to take further losses this week.
News of the deal to lift the debt ceiling in the US has so far inched traders into a position of market uncertainty, which has dropped the value of the USD. With the economies of Europe and the US posting little positive news on yesterday’s calendar, the amount of pessimism surrounding the forex market, particularly in the fragile United States and euro zone, appears to have grown, further dampening the strength of the EUR, GBP, and AUD.
With a heavy news day expected today, however, traders are sure to see a return of portfolio adjustment as volatility becomes elevated. The US economy will be publishing several minor reports on personal income and spending levels for American consumers. Should today’s news disappoint, there is a possibility that more investment will get pushed towards the safety of the Swissie and yen, driving USD values lower in the process. Traders will also want to keep an eye on Swiss economic news as it may also impact risk sentiment heavily during the morning sessions.
The Swiss franc (CHF) has been seen trading with largely bullish results so far this week as traders assess the risk sentiment across the region. Against the US dollar (USD) the Swissie was seen trading bullish in late trading as shifts away from the greenback, due to uncertainty about a recent deal struck over the debt ceiling in the United States, caused a stir in the foreign exchange market.
News of debt contagion spreading across the euro zone also has several economists worried that a toppling of consumer confidence may be up next. Whether Switzerland is affected by this regional tug is a matter for speculation at the moment, however. Should today’s reports on retail sales indicate a downturn in spending, and thus sentiment, there is a chance that traders will take the news to mean the Swiss franc will meet resistance in the near future.
On tap today, traders will witness the release of a highly significant report on retail sales in Switzerland at 8:15 GMT. At 8:30 GMT, the organization known as SVME will be publishing its recent findings on Switzerland’s PMI. Should the figures reveal stagnation in consumer spending and inflationary growth, we could see heftier flights to safety in the days and weeks ahead. This would likely push the value of the CHF higher over the long-haul as traders continue to flee risk in larger numbers.
The Australian dollar (AUD) was trading mostly weaker versus its currency counterparts yesterday after data releases have begun to shift traders back into safety. The Aussie has been losing momentum these past few weeks as risk aversion becomes predominant in the global market. Fears emanating from the current deal struck in Washington, DC regarding its debt ceiling has made the forex market jittery so far this week, leading many to seek safety.
This movement has gouged the AUD against all of its currency rivals, especially against safe-havens like the Swiss franc (CHF) and Japanese yen (JPY). With significant reports released this morning, forex traders are highly likely to see heavy movement by the Aussie in today’s trading hours. News out of China yesterday is also expected to hike volatility throughout the Pacific countries of Japan, New Zealand and Australia. Pacific traders should be cautious in today’s trading.
Crude Oil prices held steady Monday as sentiment appeared to favor a downturn in global stocks should the US debt ceiling agreement fail to produce the needed results to stave off a default. Data releases out of Europe and the US last week are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.
An expected jump in dollar values due to this week’s risk averse environment has helped many investors ram up their short-taking positions on physical assets, but with the USD’s gains not materializing, sentiment appears to have the price of crude oil holding steady. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by mid-week.
The weekly chart shows a bullish engulfing pattern was followed by a false breakout above the trend line falling off of the May and July highs. A pullback from this resistance line formed a doji reversal candlestick which hints at declines in the EUR/USD. The 200-week moving average looks to be the first support at 1.4025 followed by the 200-day moving average at 1.3930. The rising trend line from the May low could also be supportive at 1.3830. To the upside 1.4580 will need to hold to maintain the bearish technical picture. A close above this level could go on to test 1.4700 and this year’s high of 1.4940.
Three weeks of consistent gains for cable are beginning to shift the technical picture from bearish to bullish. Sterling has moved above resistance levels that otherwise would have contained the pair. The first break occurred above the neckline of the head and shoulders pattern at 1.6185 and the second major break occurred at 1.6370 above the previous trend line rising from the May 2010 low. Initial resistance will be the May 31st high at 1.6550 followed by the April high at 1.6745. A move lower for the GBP/USD will likely test the base at 1.6260 followed by the previously broken trend line off of the April high at 1.6140. A breach of 1.6000 could have scope towards 1.5780.
Yen strength has returned with a vengeance. Last week’s candlestick closed with a shaved bottom indicating momentum is to the downside. This week’s opening gapped higher but the price managed to hold below the current short term trend line from the July 20th high which comes in at 78.05. Additional resistance may be 79.60 and the 55-day moving average at 80.15 but the downside is calling. Support is found at 76.70 from last week’s low followed by the all-time low from March at 76.11. A break here and we move into uncharted territory where the psychological support at 75.00 and 70.00 come into play.
The Swiss franc is in a similar position as the yen as the USD/CHF moves into uncharted territory. Bias remains to be short but Monday’s opening gap higher could create a Harami reversal pattern which may lead slight gains for the pair. A daily close will be needed for confirmation. Resistance is found at 0.8080 and 0.8275. A move higher to these levels would provide for potential short entries back into the long term downtrend with targets at the big round number at 0.7800.
Yesterday the EUR/JPY briefly moved below the 109.50 support before pulling back to 110.27. Traders appear ready to test the resolve of the Japanese Ministry of Finance to intervene once again in the forex markets which could lead to further gains for the yen versus both the dollar and in the crosses. The EUR/JPY has resistance at the falling trend line from July high which comes in today at 112.15. Support is found at the pre-intervention low at 106.25.
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The Japanese yen, Swiss franc, and US dollar all began this week’s forex trading on a high note as the safe haven currencies rallied following disappointing US ISM manufacturing numbers. The Australian dollar was a down sharply in early trading today on a combination of the “risk-off” environment and a signal of caution by the RBA to raise rates given international influences.
Key Economic Events:
AUD – Cash Rate and Rate Statement – 04:30 GMT
Actual: 4.50%. Expectations: 4.50%. Previous: 4.5%.
As expected the RBA held interest rates steady but the Australian central bank signaled it would likely keep rates on hold given the headwinds in global economy. The Aussie slid across the board as traders likely expected a more hawkish statement. Support for the AUD/USD is found at 1.0890 and 1.0800. These levels may offer traders better entries into the uptrend as the RBA will likely continue to increase Australian interest rates given the elevated rates of inflation and excessive growth in the Australian economy.
GBP – Construction PMI – 08:30 GMT
Expectations: 53.2. Previous: 53.6.
Yesterday’s dreadful manufacturing PMI numbers were below the 50 boom/bust level and increase the chances of additional quantitative easing by the BOE. Support is seen at 1.6260. Fibonacci retracement targets from the July low come in at 1.6220 and 1.6125.
USD – US Debt Ceiling Vote – TBA
Yesterday the House approved a $2.4 trillion increase to the US debt ceiling and today the bill awaits a vote in the Senate. While the deal isn’t perfect by any standards and leaves the heated debate over bloated entitlement programs for a later date expectations are for the bill to be approved today. In his weekly column in the New York Times, Nobel prize winning economist Paul Krugman points out the budget cuts will only further weigh on US economic growth with a reduction in government spending in a time where the US economy needs all the stimulus it can get. EUR/USD bias is to the downside as the pair has not been able to hold a bid above 1.45. Support is found at 1.4140 with a 61.8% retracement target at 1.4100 from the July low to the July 27th high. Resistance is located at the overnight high of 1.4280 and 1.4450.
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The Reserve Bank of Australia (RBA) held its benchmark monetary policy rate steady at 4.75%. The RBA said: “Year-ended CPI inflation has been high, affected by the extreme weather events earlier in the year. As these effects reverse over the next couple of quarters, CPI inflation should decline. But measures that give a better indication of the trend in inflation have begun to rise over the past six months, after declining for the previous two years.” The Bank also noted: “Board remains concerned about the medium-term outlook for inflation”, and noted “it is appropriate under such circumstances for monetary policy to exert a degree of restraint.”
The Bank also kept the cash rate unchanged at 4.75% at its previous meeting in July this year, the RBA last increased the interest rate by 25 basis points in November last year. Australia reported annual consumer price inflation of 3.6% in Q2 this year, up from 3.3% in Q1, and 2.7% in the December quarter of 2010, and just outside the Bank’s inflation target of 2-3%. The Australian economy shrank -1.2% during the March quarter due to the impact of natural disasters; placing year on year GDP growth at a slower pace of 1.2%.
USDJPY broke below 76.40 previous low and reached as low as 76.29. The pair is now forming a cycle bottom on 4-hour chart, consolidation of downtrend from 81.47 is needed in a couple of days, and the trading range would be between 76.29 and 78.02. As long as 78.02 resistance holds, downtrend could be expected to resume, and another fall towards 75.00 is still possible after consolidation. On the upside, a break above 78.02 will suggest that the fall from 81.47 has completed at 76.29 already, then the following upward movement could bring price back to 82.00-83.00 area.
July 28 would have been Ralph N. Elliott’s 140th birthday, so it’s a fitting time to post an excerpt from his essay, “The Basis of the Wave Principle.” There’s nothing like reading for yourself what the discoverer of the Wave Principle wrote about how it works. This essay is taken from the book, R.N. Elliott’s Masterworks. It’s the definitive collection that Robert Prechter collected and published in 1994.
* * * * *
The Basis of the Wave Principle
by R. N. Elliott
First published on October 1, 1940
Civilization rests upon change. This change is cyclical in origin and characteristics. A rhythmic series of extreme changes constitutes a cycle. When a cycle has been completed, another cycle is started. The rhythm of the new cycle will be the same as that of the previous cycle, although the extent and duration may vary. The cycle progresses in accordance with the natural law of movement.
The behavior of cycles has been studied extensively by puzzled economists, bankers and businessmen. In this connection, the conservative London Economist in a recent issue, commenting upon the results of a long study of trade cycles made by Sir William Beveridge, the noted British economist, said:
Sir William’s researches have emphasized once again that the more the trade cycle is studied, the more it seems to follow the pressure of forces which, if they are not wholly beyond the reach of human control, have at least enough of the inexorable in their nature to make the policies of governments resemble the struggles of fish caught in the tides. Sir William pointed out that the trade cycle ignores politics; he might have added that it overrides economic policies.
The causes of these cyclical changes seem clearly to have their origin in the immutable natural law that governs all things, including the various moods of human behavior. Causes, therefore, tend to become relatively unimportant in the long term progress of the cycle. This fundamental law cannot be subverted or set aside by statutes or restrictions. Current news and political developments are of only incidental importance, soon forgotten; their presumed influence on market trends is not as weighty as is commonly believed.
This law of natural change is inevitable, and applies to the seasons and the movements of the tides and planets. It has truly been said that change is the only “immutable thing in life.” Being a natural phenomenon, it necessarily governs all human activities, even the relatively static sciences of biology and botany. Even time and mathematics appear to be amenable to the application of this law of rhythm from the small unit of hours to the great intervals of decades, centuries and millennia. Measuring the behavior of cycles should therefore offer a reliable means of forecasting changes, regardless of the cause, and thus yield handsome profits.
In an independent study of the available data, extending over a period of many years, the writer has observed certain recurring behavior of change in movement. Apparently these changes follow a natural law that inevitably influences the mass. Finally there evolved certain principles, which were carefully tested back over a long period of years.
By 1934, I was able to resolve the various trends of changes in stock prices to a rhythmic series of component waves, which I called a “cycle.” This cyclical rhythm has occurred regularly and repeatedly not only in the available records of the various stock exchanges, but also in commodities, industrial production, temperature, music, variation in color, electric output, population movements to and from cities, etc. In fact, it is manifest so widely, not only in human activities but also in the working of nature itself, that I have termed this discovery “The Wave Principle.”
Understanding of this law enables the close student to forecast the terminations of cycles by means of the market itself. The Wave Principle is not a “market” system or theory. The forecasting principle involved goes far beyond the concept of any known formula….
 Learn more about the Elliott Wave Principle and how applying it to your market analysis can improve your investing and trading. Take the entire online course — The Elliott Wave Tutorial: 10 Lessons on the Wave Principle — FREE! |
This article was syndicated by Elliott Wave International and was originally published under the headline Read About the Elliott Wave Principle in R.N. Elliott’s Own Words on his Birthday. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
The Central Bank of the Republic of Uzbekistan held its refinancing rate unchanged at 12.00%. The Bank noted: “According to the primary directions of the monetary policy for 2011, as well as the actual and expected inflation level, the bank kept its refinancing rate unchanged,”. The Bank last reduced the refinancing rate by 200 basis points to 12.00% from 14.00% in late December 2010. Uzbekistan reported annual inflation of 7.3% in 2010, compared to 7.4% in 2009, meanwhile inflation is forecast to be between 7-9% this year.
The Eurasian Development Bank is forecasting economic growth of 7.8% for Uzbekistan, and 4.5% GDP growth for the CIS region.
The Bank of Botswana‘s Monetary Policy Committee kept the benchmark interest rate steady at 9.50%. The Bank said: “The current state of the economy and the assumptions on both the domestic and external economic outlook, as well as the inflation forecast, suggest that maintaining the prevailing level of interest rates is consistent with the achievement of the Bank’s 3 – 6 percent inflation objective in the medium term.”
Manufacturers working in conjunction with China appeared much pleased this morning after several reports on Chinese PMI signaled solid bullishness in the Asian giant’s manufacturing sector. The core report on Chinese Manufacturing PMI showed an upward movement beyond the expected reading of 50.2, reaching 50.7 instead.
Adding to the bullishness surrounding China’s core PMI report, HSBC’s concurrent report on Final Manufacturing PMI also highlighted a solid uptick from 48.9 last month to 49.3 this month. After the recent passage of a lift on the US debt ceiling, Chinese markets appear poised for sharp gains considering the close interconnection between the two economic rivals’ national debt holdings.
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A minor downtick in Britain’s manufacturing purchasing managers index (PMI) helped drag the British pound (GBP) slightly lower in today’s European trading sessions. Though the UK’s housing sector was seen rising last week, a dip in manufacturing appears to be tearing into recent upswings in optimism.
Mixed growth in several sectors has had traders on edge these past few weeks. Such reports out of the vital manufacturing sector give cause for concern as Britain struggles with regional debt woes and its own structural deficits. Risk appetite may be switched on this week, however, considering the recent passage of a debt ceiling increase in the United States. Should sentiment shift in favor of regional currencies, the GBP may find itself gaining throughout the week.
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