With only 10 days to go until the Scottish independence referendum, the “Yes” campaign has taken the lead in the latest survey conducted from YouGov, a British opinion research firm for the Sunday Times. The poll carried out between 2 and 5 September showed that 51% of those who have made up their mind planned to back independence, while 49% intended to vote no. Just a month ago, this pollster reported a 22 ppt lead for the no camp, which narrowed to six ppt in their last Sunday poll, and to a 2 ppt shift towards independence at their latest poll. However, the shift in YouGov’s polls contrasts with other figures from another pollster, whose latest results showed a 52-48 majority against independence. As I mentioned before, until recently there was no risk premium for this event at all priced GBP but now investors can no longer ignore the possibility of Scotland declaring independence after the shock poll put the Yes camp in the lead for the first time. The technical picture looks unfavorable as well for GBP, and the pound may decline further as the voting date comes closer. (I wrote about this likelihood back in July; the article is available on the web at http://www.cnbc.com/id/101870529 ).
I believe a "yes" vote would not only be disastrous for GBP but would also be negative for EUR in that it would strengthen the centrifugal forces pushing Europe apart. It would embolden other dissatisfied regions, such as Catalonia in Spain, and might encourage political parties that want their country to leave the Eurozone.
The US employment report released last Friday showed that hiring in August slowed the most this year. Non-farm payrolls increased by only 142k, missing expectations of a 230k increase. Firday’s release ended a six-month streak in which employers hired at least 200k employees. The well-below-consensus print was weaker than the lowest estimate in a Bloomberg survey, surprising the market and pushing the greenback lower across the board. On the positive side, the unemployment rate declined to a six-year low and average hourly earnings accelerated to +0.2% mom from an upwardly revised +0.1% mom, keeping the yoy rate at 2.1%. The pickup in wage growth the past three months, if sustained, would add to questions about how much slack remains in the labor market. Bearing that in mind and the fact that indicators like jobless claims and job openings still point to continued strength, I would expect the dollar regain its momentum. I think that NFP number was a good excuse for profit-taking, given the high USD long positioning that has been building recently, especially against the euro, and that the trend is likely to resume.
At the same time in Canada, the unemployment rate remained unchanged at 7.0% in August from the previous month. The net change in employment however, turned negative again showing a net loss of 11k in August. For the last couple of months the employment figure has been switching from positive to negative and vice versa pushing CAD to the direction of the figure each time.
Today: On Monday we have a very light calendar. During the European day, the only indicators worth mentioning are Germany’s trade and current account surpluses, which are expected to increase in July. In the UK, we get the Halifax house prices for August and the forecast is for a slowdown in pace.
From Canada, we get building permits for July but no forecast is available. We have no major indicators coming out from the US.
We have one speaker scheduled on Monday, ECB Governing Council member Ewald Nowotny speaks.
Rest of the week: As for the rest of the week, on Tuesday, Bank of Japan releases the minutes of its August 7-8 monetary policy meeting. However, these are not the minutes from the most recent meeting but rather from the previous one, when the Board kept policy unchanged and showed confidence that inflation will reach the Bank’s 2% target. Japan’s tertiary industry index is also coming out and the forecast is for a rebound in July. From the UK, we get the industrial production for July and from Canada, we have housing starts for August. On Wednesday, the main event will be the testimony on the August inflation report of Bank of England Governor Mark Carney and other MPC members to the Treasury Committee. From Japan we get machinery orders for July. In France industrial production for July are to be released and from Norway we get the country’s CPI for August. On Thursday, the spotlight will be on the Reserve Bank of New Zealand policy meeting. Last time, the Bank raised its official cash rate by 25 bps, as was generally expected, but said it would pause for “a period of assessment” before interest rates adjust further towards a more-neutral level. Given this, no change in policy is expected. RBNZ Governor Wheeler will hold a press conference after the rate decision. In Australia, the employment figures for August are coming out and the forecast is for the unemployment rate to decline a bit from its highest level since 2002. During the European day, we get CPI data from Germany, France and Sweden, as well as the unemployment rate from the latter. Finally on Friday, the most important indicators we get are UK’s construction output for July and US retail sales for August.
The Market
EUR/USD rebounds somewhat
EUR/USD rebounded somewhat on Friday, after the US employment report showed that hiring slowed in August. The pair moved slightly higher and during the early European morning Monday is trading between the 1.2917 (S1) line and the psychological barrier of 1.30000 (R1). The RSI lies within its oversold territory and could cross above its 30 line any time soon, while the MACD shows signs of bottoming and appears willing to move above its trigger line in the near future. Having that in mind, I would be cautious of further upside correction, but I will maintain my view that the overall picture remains negative. The pair is printing lower highs and lower lows below both the 50- and 200-day moving averages and a clear move below the 1.2900 (S2) support is likely to set the stage for larger downside extensions, perhaps towards the next key support zone of 1.2760 (S3), defined by the lows of March and July 2013.
• Support: 1.2917 (S1), 1.2900 (S2), 1.2760 (S3).
• Resistance: 1.3000 (R1), 1.3100 (R2), 1.3152 (R3).
USD/JPY pulls back
USD/JPY moved lower on Friday, confirming my concerns of a possible pullback. The decline was halted near the support line of 104.75 (S1), marginally above the blue short-term uptrend line. As long as the price is trading above that trend line and above both the moving averages, I consider the upside path to remain intact. However, taking into account that we have negative divergence between the price action and both our momentum indicators, I would take the sidelines until I see the studies supporting the pair. In the bigger picture, I still see a newborn long-term uptrend, since, after the exit of a triangle, the price structure remains higher highs and higher lows above both the 50- and the 200-day moving averages.
• Support: 104.75 (S1), 104.26 (S2), 103.90 (S3).
• Resistance: 105.30 (R1), 105.70 (R2), 106.00 (R3).
GBP/USD gaps down on Scotland worries
GBP/USD opened the European session with a bearish gap, as an opinion poll showed that supporters of Scotland’s independence gained a lead for the first time since the beginning of the referendum campaign. The rate opened below the key barrier of 1.6260 (support turned into resistance), something that makes me believe that we are likely to experience further downside extensions. The MACD lies below both its zero and signal lines, while the RSI lies within its oversold field, but is pointing down. This corroborates my negative view on the rate and I would expect the pair to challenge our support line of 1.6120 (S1) in the close future. In the bigger picture, as long as Cable is printing lower highs and lower lows below the 80-day exponential moving average, the moving average that supported the lows of the price action for a whole year, I consider the overall path to be to the downside.
• Support: 1.6120 (S1), 1.6000 (S2), 1.5870 (S3).
• Resistance: 1.6260 (R1), 1.6350 (R2), 1.6460 (R3).
Gold rebounds from near 1260 again.
Gold moved higher after failing to close below the 1260 (S1) line. This alongside our momentum signs is the reason I would change my view to neutral for now. The RSI just crossed above its 50 line, while the MACD lies above its signal line, pointing up. Also, I see positive divergence between the price action and both the studies. As long as the precious metal is trading within the purple downward sloping channel and below the black line drawn from back at the low of the 30th of December, I consider the downside path to remain intact, but only a clear close below the support of 1260 (S1) could confirm a forthcoming lower low and pull the trigger for another leg down.
• Support: 1260 (S1), 1250 (S2), 1240 (S3).
• Resistance: 1273 (R1), 1280 (R2), 1290 (R3).
WTI remains trendless
WTI continued declining on Friday, but the tumble was halted slightly above our support line of 92.60 (S1). As long as the price is trading between that barrier and the resistance of 96.00 (R1), I will consider the near-term path to be to the sideways and I will maintain my neutral stance. I will repeat that I would like to see a move above 96.70 (R2) to shift my attention to the upside. Such a move would confirm a forthcoming higher high and is likely to target the 98.45 (R3) barrier. On the downside, only a dip below 92.60 (S1) could signal the continuation of the prior downtrend.
• Support: 92.60 (S1), 91.60 (S2), 90.00 (S3).
• Resistance: 96.00 (R1), 96.70 (R2), 98.45 (R3) .
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
