Forex: work done, have your fun

USpresidentisplayingawaitinggame

Donald, we know that you want a second time, but we have a headache. One can do everything to be re-elected in the 2020 presidential elections! One can make the Fed lower the rate, to keep the hopes that the GDP growth will be at 3% and the stock indices- at all-time highs; one can weigh on China with tariffs to realize the principle “America above all!”. If some people used to smile at Trump during his 2016 presidential campaign, they no longer do it now. There are other clowns. For example, the St. Louis Fed President James Bullard, who wants to take the seat of the Fed Chairman so much that he is speaking in the language of Donald Trump. Or there is the President of the Deutsche Bundesbank, Jens Weidmann, who used to actively criticize the QE and is now willing to promote the asset purchasing program. And all of this was done to take the seat of the ECB president, which was finally taken by a French. Now, the German realizes that a loser is someone who gets both of two evils… Both the German economy that is on the verge of the recession, and the Bundesbank…

Investors think that the media should pay Trump for keeping his twitter updated. Forex life becomes dull without his attacks on the Fed, China and Europe. In mid-July, he just briefly mentioned the trade war, saying that he will slam new tariffs against China if he wants, and won’t, if he doesn’t want. The president used to be far more active in early July. He may be taking a rest.

– Hi, how are you?

– I’m going on holiday.

– Are you going take your wife or to take a rest?

In my opinion, a wait-and-see attitude is the best tactics for the president. He is waiting to see what the Fed and China will do. If they do little, he will criticize; if they do enough, he will thank. It is basically about the federal funds rate cut. A 25-bps cut is nothing, 50 bps will do! Donald Trump and Jerome Powell seem to have changed the roles. The Fed was willing to wait and see in early 2019, now, the President is doing the same.

– What are you doing today?

– Nothing!

– But you were doing this yesterday, weren’t you?!

– I didn’t complete…

It is another story with China. Trumps calls XI Jinping his friend, but he is doing everything to prevent China from outperforming the US in 5-10 years. I love my friend, and I put my heart in the friendship, my fist in his eye, my kick in his belly…. The means don’t matter, what matters is the outcome.

– Donald, will you go to your neighbor and ask for salt?

– This cheapskate won’t give anything anyway!

– You can go through his backyard….

The last comments by the President about new tariffs against China, like, he can both slam them and not, according to his personal will, make me think that he is obviously going too far. He knows that the cup runs over faster if you are spitting into it. But one can do everything to be re-elected for the second term! I sometimes want to say something like, “Mr. President, when you are trying your dreams on the reality, check the size in the label at least!”

Trump’s sluggishness may be not only because of the holiday season or his willingness to wait and see, but because of common boredom as well. What a dull age is now!? You can’t execute people or have slaves or torture someone. I was born at the wrong time!


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Price chart of EURUSD in real time mode

Forex: work done, have your fun

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

EUR/USD: Wave analysis and forecast for 19/07/19 – 26/07/19

EUR/USD is still likely to grow. Estimated pivot point is at the level of 1.1191.

Main scenario: “long positions” are relevant from corrections above the level of 1.1191 with the target in 1.1413 – 1.1572.

Alternative scenario: breakout and consolidation below 1.1191 will allow the pair to continue to decrease to 1.1100 – 1.1000.

Analysis: within the daily timeframe, the formation of a downward correction of a senior level as the second wave 2 has presumably completed, and took the form of a zigzag with a diagonal in wave (C) of 2. On the 4 – hour timeframe, presumably, the development of the third wave 3 has begun, the wave 1 of (1) of 3 had been formed within and the correction 2 of (1) had been completed. Within the H1 timeframe, the third wave 3 of (1) has apparently begun, which includes a counter-trend impulse (i) of i of 3 and the correction (ii) of i has been completed. If the assumption is correct, the pair will continue to rise to 1.1413 – 1.1572. Critical level for this scenario is 1.1191.




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Price chart of EURUSD in real time mode

EUR/USD: Wave analysis and forecast for 19/07/19 – 26/07/19

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

USD/CHF: Wave analysis and forecast for 19/07/19 – 26/07/19

USD/CHF is still likely to grow. Estimated pivot point is at the level of 0.9691.

Main scenario: “long positions” are relevant from corrections above the level of 0.9691 with the target in 1.0099 – 1.0229.

Alternative scenario: breakout and consolidation below the level of 0.9691 will allow the pair to decrease to the level of 0.9556.

Analysis: within the daily timeframe, it is assumed that the development of the third wave of the senior level (3) continues, the first wave in the form of a wedge 1 of (3) is formed within. On the 4 – hour timeframe, the development of a downward correction in the form of wave 2 of (3) has completed. Within the H1 timeframe, apparently, the formation of the third wave 3 of (3) begins, in which the first wave of the junior level (i) of i of 3 is formed and the development of local correction as the wave (ii) of i is nearing completion. If the assumption is correct, after its completion, the pair will continue to grow to 1.0099 – 1.0229. The critical level for this scenario is 0.9691, in case of breakout of which the pair will continue to decline within the wave 2 of (3).




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Price chart of USDCHF in real time mode

USD/CHF: Wave analysis and forecast for 19/07/19 – 26/07/19

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

XAU/USD: Wave analysis and forecast for 19.07.19 – 26.07.19

The pair XAU/USD is still likely to grow. Estimated pivot point is at a level of 1397.47.

Main scenario: Long positions will be relevant from corrections above the level of 1397.47 with a target of 1484.01 – 1585.56.

Alternative scenario: Breakout and consolidation below the level of 1397.47 will allow the pair to continue declining to the levels of 1344.58 – 1264.18.

Analysis: Supposedly, an ascending corrective wave of senior level (B) continues forming on the W1 time frame, with the wave C of (B) developing within. On the D1 time frame, presumably the third wave iii of C is developing, with the wave of junior level (iii) of iii forming inside. Presumably, the local correction as wave iv of (iii) has finished in the form of a triangle and the wave v of (iii) is forming on the H4 timeframe. If this assumption is correct, the price will continue rising to the levels of 1484.01 – 1585.56. The level 1397.47 is critical in this scenario.




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Price chart of XAUUSD in real time mode

XAU/USD: Wave analysis and forecast for 19.07.19 – 26.07.19

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

USD/СAD: Wave analysis and forecast for 19/07/19 – 26/07/19

The probability of a decrease in USD/CAD stays. Estimated pivot point is at the level of 1.3144.

Main scenario: “short positions” are relevant from corrections below the level of 1.3144 with the target of 1.2910 – 1.2797.

Alternative scenario: breakout and consolidation above the level of 1.3144 will allow growth to 1.3233 – 1.3281.

Analysis: within the daily timeframe, the downward correction is presumably continuing to form as the second wave of the senior level (2). On the 4 – hour timeframe, wave C of (2) is developing in the form of an impulse. Within H1 timeframe, it appears that a correction has been formed as a wave iv of C and the fifth wave v of C is being developed. If the assumption is correct, the pair will continue to decrease in the wave of v of C to 1.2910 – 1.2797. Critical level for this scenario is 1.3144.




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Price chart of USDCAD in real time mode

USD/СAD: Wave analysis and forecast for 19/07/19 – 26/07/19

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

USD/JPY: Wave analysis and forecast for 19.07.19 – 26.07.19

USD/JPY pair is still likely to grow. Estimated pivot point is at a level of 106.75.

Main scenario: long positions will be relevant above the level of 106.75 with a target of 110.73 – 112.38. 

Alternative scenario: breakout and consolidation below the level of 106.75 will allow the pair to continue declining to the levels of 106.00 – 105.00. 

Analysis: Supposedly, the wave of senior level (C) of B continues developing on the D1 time frame, with the wave 3 of (C) forming inside. On the H4 timeframe, presumably the descending correction ii of 3 is completed in the form of a zigzag, with the wave (c) of ii formed inside as an impulse. Apparently, the third wave iii of 3 started developing on the H1 time frame, with the first wave of junior level (i) of iii formed and the correction (ii) of iii finishing inside. If the presumption is correct, the pair will continue to rise to the levels of 110.73 – 112.38. The level of 106.75 is critical in this scenario.




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Price chart of USDJPY in real time mode

USD/JPY: Wave analysis and forecast for 19.07.19 – 26.07.19

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

GBP/USD: Wave analysis and forecast for 19.07.19 – 26.07.19

Correction is completed, the pair GBP/USD is still likely to continue growing. Estimated pivot point is at a level of 1.2380.

Main scenario: Long positions will be relevant from corrections above the level of 1.2380 with a target of 1.2781 – 1.2975.

Alternative scenario: Breakout and consolidation below the level of 1.2380 will allow the pair to continue declining to the levels of 1.2300 – 1.2200.

Analysis: Supposedly, a descending correction of senior level in the form of the second wave (2) finished developing on the D1 time frame in the form of a zigzag. Presumably a descending impulse has finished as wave C of (2) on the H4 timeframe.  Apparently, on the hourly timeframe, the fifth wave of junior level has finished v of C of (2), and there starts developing wave (3), with the first counter-trend wave (i) of i of 1 of (3) forming inside. If the presumption is correct, the pair will continue to rise to the levels of 1.2781 – 1.2975. The level 1.2380 is critical in this scenario.




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Price chart of GBPUSD in real time mode

GBP/USD: Wave analysis and forecast for 19.07.19 – 26.07.19

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

Dollar said too much

Fed’s dovish comments encouraged EUR/USD bulls to go ahead

When they say the dish is not served for breakfast, it can well be served for lunch. According to the US Treasury Secretary Steven Mnuchin, here is no change in the U.S. monetary “as of now” but he wouldn’t rule out a shift at some stage in the future. As for the weak dollar that he used to say was good for the US, he said he wouldn’t provide any comments about the policy of the dollar or the euro-dollar. According to Scotiabank, the US administration is carefully monitoring the US dollar trends; a slowdown in the US growth and no progress in the foreign trade increase the risks of FX interventions.

As I noted in my previous posts, if the US unleash the war, it may face a strong resistance. In the case with import tariffs and central banks’ interest rates, the advantage is on the Fed’s side, but the resources of their opponents in the currency war look much more impressive than those of the US. Most of America’s $126 billion in reserves are parked in its Exchange Stabilization Fund (ESF) managed by the Treasury. By comparison, China has $3.1 trillion in reserves. After all, the Treasury won’t be acting alone. It can well cooperate with hedge funds, that have more clout.

While investors were speculating about the risks of currency wars, the markets were shaken by the dovish comments of FOMC members. After New York Federal Reserve President John Williams said that under the conditions of low interest rates it makes no sense to wait and see, and the central bankers need to “act quickly” as economic growth slows, market expectations for a 50-bps rate cut leaped at about 70%. Only the comments of New York Federal Reserve representatives that this was an academic speech on 20 years of research. It was not about potential policy actions at the upcoming FOMC meeting, the probability of an aggressive federal funds rate cut went down to 46%.

Dynamics of probability of 50 basis point rate cut by Fed

   

Source: Wall Street Journal

Remember, the indicator was above 40%, following the FOMC June meeting, and was down below 2% after the release of the last US jobs report. Its changes have a direct influence on the US dollar.

Williams says that an interest-rate cut when the economy is strong is like a vaccination against further ills. Later, Fed Vice Chair Richard Clarida said that preventive measures would be necessary. According to St. Louis Federal Reserve president James Bullard, a rate cut should relieve the uncertainty around the US-China trade battle. Taking into account that Donald Trump has many times expressed the same opinion, one may guess who of the of the Fed’s regional bank presidents is going to take Jerome Powell’s post. The president can’t legally fire the Fed chairman, but there is no clear wording about his demoting.

In my opinion, the scenario, suggesting a 50-bps cut of the federal funds rate and the Fed’s willingness to wait and see the situation further developing, looks quite real. If so, the EUR/USD should be rising till the FOMC July meeting, followed by the realization of the principle “buy on rumors, sell on facts”. The bulls should break out the resistances at 1.13 and 1.1325 for a start.


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Price chart of EURUSD in real time mode

Dollar said too much

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

Marshall Gittler’s weekly comment: fed in the driving seat for FX

The action in the FX market this week is strangely mixed. The best performing currencies this week have been NZD and AUD, two of the commodity currencies. Normally that would indicate “risk on,” and you could be pretty certain that the worst performing currencies would be JPY and CHF. Wrong! JPY and CHF also gained.

The explanation? Blame it on the Fed.

The big move in all currencies came on Thursday afternoon, when New York Fed President John Williams said that a central bank facing the zero bound on interest rates should move quickly. “When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress,” he said. Vice Chair Clarida echoed those comments, saying “research shows you act pre-emptively when you can… You don’t want to wait” for the economy to turn down.

This is a big change from earlier in the year, when they switched from a steady one-hike-per-quarter pattern to being “patient” while they watched the data. Data dependency is now out the window; in its place is getting ahead of expectations.

Why are policymakers so concerned about easing now, when they largely admit, as Clarida said, that the US economy is in a good place and that their baseline case is still that inflation will return to their target level? Clarida perhaps said it most clearly: “global data has been disappointing.”

In part, the Fed is acting as the world’s central bank. But at the same time, the US economy’s links to global trade and financial markets have increased over time. The US business cycle is becoming more and more dependent on the business cycle in the rest of the world. That means the US economy faces more risks now because business abroad is slowing.

These changes are transmitted to the US not only through trade, but also through changes in financial conditions, which can turn around much more rapidly.

Last year, the US tax cuts helped to keep the US economy growing strongly even while the rest of the world turned down. But that tailwind from fiscal policy has faded. The downturn in activity around the world is affecting the US more than it did before and adding to the slowdown in activity, particularly by weighing on business confidence and investment.

In short, with global activity now having a bigger impact on US growth, the Fed is paying more attention than before to global conditions. And that means more need to take action now even if on a strictly domestic basis there isn’t any urgency.

Back with Williams’ speech, the other stunning point was when he said that the long-run “neutral” rate of interest – that which neither stimulates nor depresses the economy – could be just 0.5%. That’s astonishing. The estimate of FOMC members has been coming down steadily, but even so, the median currently stands at 2.50%.

By comparison, the average rate of the FF rate from its inception in 1955 until the Global Financial Crisis in 2008 was 5.7%. Even measuring from 1990 to avoid the impact of the Volcker era, we get 3.6%.

What Williams is talking about is basically the Japanification of the US economy. The Bank of Japan guided short-term interest rates down to 0.5% in September 1995. They’ve been there more or less ever since. They’ve been slightly negative (-0.1% or so) since April 2016.

If that’s what the FOMC is worried about, then they must be really, really worried. I’m sure they don’t want to fall into the trap that Japan has, in which core inflation hasn’t even gotten to 1% in over two decades (except when they hiked the consumption tax, which obviously would affect retail prices). As a result, the odds of a 50 bps cut at the 31 July meeting jumped to 64% from about 40% before Williams started speaking.

Williams’ speech holds out the possibility of large-scale easing in the US – something that most other countries can’t envision right now, simply because most other countries don’t have policy rates as high as the US. Thus the likelihood is that the US rate advantage over other currencies may narrow from here. That should be negative for the dollar.

As for the worst-performing currency this week, that was sterling. There are three reasons for that: Brexit, Brexit and Brexit. Plus a soft labor market and no signs of accelerating inflation.

I remain bearish on sterling as it’s just going to get worse. The terrible PM May is set to leave office this coming week, probably to be replaced by the appalling Boorish Johnson. Twice this week he showed live on TV that he either doesn’t understand the trade negotiations or he’s a baldfaced liar. Maybe both. How the country can entrust its fate to such a buffoon at such a critical time in its history…it’s unbelievable. We have had to learn the word “prorogue,” which means “to discontinue a session of (a parliament or other legislative assembly) without dissolving it,” because apparently that’s what he’s threatening to do to get his “no deal Brexit” through. Is that just a bargaining ploy to force the EU to make further concessions? Only in the imagination of a British politician. The Europeans have been quite consistent in their view: they say we have a Withdrawal Agreement, take it or leave it. I think the chances of Britain crashing out without an agreement are increasing rapidly. The only alternative to crashing out on Oct. 31st might be to get an extension while they hold another general election. Then you have the possibility that the truly horrifying Jeremy Corbyn gets into power, maybe the only politician in Britain who’s worse than Johnson. What a mess.

Coming week: PMIs, ECB meeting, US GDP, Japan CPI

As the month draws to a close, the preliminary purchasing managers’ indices (PMIs) from the major economies take center stage as usual.

Most countries are showing an accelerating contraction. Only one major country, France, is showing an accelerating expansion, and that’s nothing to get excited about – the manufacturing PMI of 51.9 is showing only a modest expansion. The graph is clearly skewed to the left, i.e. to PMIs below the 50 “boom or bust” line.

What we will be looking for this time is whether the major economies show any signs of bottoming out or whether the contraction continues. Expectations are that both the EU-wide and US PMIs will improve fractionally. I guess that’s better than falling, but with the EU-wide PMI expected to remain below 50, it shouldn’t give the ECB any reason to change their tune.

The ECB Governing Council meets on Thursday. For most of this year, the consensus was that rates were on hold. But starting in June, the market began to think a cut was a possibility. That idea really took off after 18 June, when ECB President Draghi made his speech to the conference in Sintra, Portugal. He said then that “…the risk outlook remains tilted to the downside, and indicators for the coming quarters point to lingering softness…In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required.” Immediately the probability of two 10 bps cuts this year jumped.

The question now is not whether they’ll ease, but rather a) when and b) how much. What we will be looking for from this meeting is an idea of what “additional stimulus” they are considering and when they might enact it. I don’t expect any move at this meeting; rather, I think they will use the meeting to signal their general agreement with what Draghi said and hint at a rate cut to come, probably in September. The market puts only a 52% chance of a cut in the deposit rate, currently -0.40%, at this meeting but a 94% probability of a cut by September.

The other question is whether they’re going to restart their bond purchases – back to quantitative easing (QE). Any hints about that could send bond yields even lower. Already, even Italian bonds are trading negative at two years and shorter, while the entire Italian yield curve is beneath the US Treasury curve. Hints of another round of QE might make it more attractive to buy European bonds now and therefore paradoxically could be positive for the euro, at least in the short run.

The US announces the first estimate of Q2 GDP on Friday. The market expects a significant slowdown to 1.8% qoq SAAR, which would be the slowest growth since 1Q 2017. For what it’s worth, the Atlanta Fed is estimating 1.6%, the St. Louis Fed is estimating 2.8%, and the New York Fed is estimating 1.5%. The New York and St. Louis Fed estimates were both updated on 11 July, so that doesn’t account for the large difference. You pay your money, you take your choice. A result like the market is looking for would signal a significant slowdown in economic activity. That would make it negative for the dollar.

Finally, the Tokyo consumer price index (CPI) comes out on Friday as well. They’re expected to show some slowing in inflation in Japan. The question is whether anyone thinks that at this point, a slowdown in inflation could trigger further easing. I doubt it but there has to be a chance. JPY negative.

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Marshall Gittler’s weekly comment: fed in the driving seat for FX

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

Dollar is looking for somebody to blame

US administration claims that currency war started long ago

If you don’t join a currency war on time, they may label you as a dummy. Trump has already accused the Fed of being a dummy that is sitting back and politely watching other countries playing their big currency manipulation games and pumping money into their systems in order to compete with USA. If the USD index remains stable, despite the expectations of the federal funds rate cut at the FOMC July meeting, the US president is to increase his pressure on the Treasury Department and the central bank. FX interventions are a good tool to weigh on the greenback. According to the IMF, the dollar is overvalued by 6%-12%.

During the past 25 years, the Treasury Department and Fed have coordinated the last three US currency interventions, splitting the amount transacted evenly between them in 1998, 2000 and 2011 in order to nudge the dollar’s value.  Now, even if the president prods the Treasury to sell dollars to drive the greenback’s price down, the Fed is largely independent and there’s no guarantee it would move in lockstep. The Treasury holds about $94 billion it could use to try to impact currency markets – a relatively small sum considering that Forex is a more than $5-trillion-a-day business. After all, as I’ve already noted, it is important to enter at the right place and at right time.

There are rumors in the market that the US has sufficient basis for interventions. Allegedly, the currency war was already unleashed in 2013, when the Bank of Japan launched a large-scale monetary stimulus. It was joined by the ECB in 2014. There is the unfair trade practice Trump claimed about when he imposed new tariffs against China. If the US president organized a trade war, then he can well launch a new round of the currency war, can’t he?

The Fed may also take part in it. It is still difficult to find a reason for a rate cut. According to Macroeconomic Advisers, the US consumer spending will expand by 4.3% in the second quarter, which is the strongest growth since 2014. The growth of industrial production in June allayed the concerns about a GDP decline due to trade wars. The US labor market is strong, the stock indices are at their all-time highs, and the restart of the US-China trade talks suggest the conflict should be easing soon. Can the global growth problems lead to a potential slowdown of the US GDP? According to Kansas City Federal Reserve Bank President Esther George it is still not clear how the slower growth abroad may affect the US economy.

The Fed seems to be trying to satisfy both financial banks and Donald Trump. If so, it may take part in the currency interventions as well. The fact that the federal funds rate may be lowered more than the interest rates of other central banks can well encourage the EUR/USD bulls to go ahead.

Dynamics of central banks’ interest rates

  

Source: Bloomberg 

Despite the wide range of the ECB monetary tools, I still see the euro growth potential limited. According to more than 57% of experts interviewed by Reuters, the ECB will discuss monetary easing at its July meeting, and the rate should be actually lowered in September. The number of respondents expecting the restart of QE increased from 15% to 40%. In the meanwhile, the EUR/USD bulls managed to held up the resistance at 1.12 due the increased concerns that the US-China trade talks won’t progress soon and the associated decline of the Treasury yields. The pair will hardly exit the trading range of 1.12-1.14 soon, as it was presumed earlier this month.


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Price chart of EURUSD in real time mode

Dollar is looking for somebody to blame

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.