Iron ore rebounded 1.7% yesterday, taking the recent rally from the June 16 low to 7%. MGX closed above the April downtrend yesterday and could look to test supply at the 80c level in the short term. Fundamentally the stock may be getting expensive on moves above 80c, with the side-side analysts fairly bearish on the name, but the technicals are suggesting the stock could have further to run.
USD/JPY continues to be held hostage by moves in the US bond market, with a strong correlation with the US 10-year treasury. Personal spending increased by less than the market had forecast overnight, hence the moves lower in the pair. The 200-day moving average currently sits at 101.70 and USD/JPY has not closed below this level since October 25, so this could be key. In terms of resistance, the bulls will want to see a pick-up in buying, with the pair ultimately closing above the downtrend drawn from the April 4 high. At 9:30am today we get Japanese national CPI for May and economists expect inflation to tick up to 3.4%. It’s worth bearing in mind that two percentage points of this total are attributed to the April consumption tax rise. At 09:50 we get retail sales and economists expect a 2% decline in this data point.
I looked at selling this pair on June 17 and it has hit a high mid-point on Wednesday of 0.8033, thus price has achieved my proposed entry point for EUR/GBP shorts. Price has pulled back below the 80 handle on the back of Mark Carney’s less aggressive macro-prudential measures imposed at yesterday’s BoE Financial Stability Report, as well as talk in Market News International publication that the ECB have not reached the lower bounds of monetary policy (i.e. they can still cut interest rates). The BoE can control prices using interest rates and macro-prudential tools, so when traders see modest action on the latter, they expect more from the former – hence sterling’s overnight bid. I feel a move to 0.7800 could be on the cards over the medium term.
Despite less aggressive action from the BoE yesterday to manage the housing market GBP/NZD found limited buyers. This pair is interesting as both corresponding central banks are clearly the most hawkish in the G10 currency region. On the weekly chart GBP/NZD broke below the 2013 uptrend in March and fell 800 pips, before rebounding to 1.9933. A new uptrend has emerged, with the pair making a series of higher highs from March. A close tonight (i.e. a weekly close) below trend support at 1.9436 would be a clear negative and suggest a move to the March low of 1.9084. I will look at short trades on Monday if this materialises.
TTS had a positive day yesterday and on both the daily and weekly chart looks strong. Price has broken the May downtrend on the weekly chart and on the daily chart printed a huge bullish reversal pattern. TTS did close above the top of the Bollinger band and a move back to the mean ($3.02) could be on the cards in the short-term, but this looks like a buying opportunity in my opinion. Yesterday’s favourable ruling from the Supreme Court to award compensation of A$451 million is seen as a material positive for the company and has seen brokers like Goldman Sachs increase its 12-month target for the company 25c to A$3.45.