TODAY’S CURRENCY MOVERS
EURUSD, Daily
The risk-off theme continues in global financial markets as traders re-price the USD in view of the reduced chance that the Fed will begin tightening rates in September. The EURUSD is now trading near multi month highs around 1.15 after accelerating through my 1.1260’s target area; see my August 14 report, current price is starting to look overbought ahead of the 1.1530 resistance level. EURUSD traders should watch if price can hold above the 1.1436 support level before initiating new longs, otherwise a break below the 1.1430’s could open up the possibility for a set-back towards the 1.1216 – 1.1189 levels ahead of an advance on the 1.16’s.
German property prices continue to rise, with prices for apartments rising by around 1.4% m/m. The overall index rose 0.73% m/m and up 5.3% y/y. Low interest rates and a robust labour market are driving up property prices, but while the Bundesbank is keeping a close eye on developments it is not seeing signs of a serious property bubble at the moment, even if prices in key cities are already overvalued.
Asian and emerging market currencies are under pressure, along with commodity related currencies such as the AUD and the CAD as the FOMC minutes showed a Committee divided, the minutes gave no clear signals on the timing of a rate liftoff, however the mention of risks from China, the growth/inflation impacts of a stronger dollar, and a downgraded inflation outlook from the Fed Staff resulted in a downbeat market interpretation. China will remain a focal point as Chinese officials struggle with a slowing economy and falling equity market.
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TODAY’S CURRENCY MOVERS
EURUSD, Daily
The EUR is trading lower this Tuesday after a nearly +340 pip move with the main cause pointing to Chinese retail investors’ realization that their government is no longer willing to support the Chinese stock markets. Monday’s aggressive global stock market sell-off was amplified by a number of brewing factors, the devaluation of the Yuan, the collapse of commodity prices, and the uncertainty of when Central banks will start to tighten rates.
At the moment, the EURUSD is at risk of a retracement of the 1.1020-1.17 sharp multi up-day move. However, the EURUSD saw serval breaks of resistance that could lead to further positive upward momentum on price. Traders should now be on alert if the former 1.1530 resistance now turned support can hold before initiating new longs, otherwise a possibility dip towards the mid 1.13’s could see buyers remerge to support price for a potential next leg higher move above the 1.1750’s.
The German DAX remains clearly below the 10000 mark and Asian markets were volatile in overnight trade, with the ASX closing higher, but the Nikkei losing nearly 4% again.
Crude Oil touched $37.70 after making it to $39’s following its entry into to the $37‘s. The slide lower comes as traders fear that global stock markets may pick up downward momentum again; the price fall indicates that traders view that global demand for the commodity will weaken as the Chinese economic slowdown takes hold.
The White House said the Treasury is “closely monitoring” global markets and China should continue to pursue reforms, while touting the strength of the U.S. economy. However, it did warn that Congress needs to pass the budget and avoid shutdowns to avoid “self-inflicted wounds”. Merkel of Germany said that a crisis in China won’t last and it will do everything it can to stabilize the situation, while Hollande of France said China will find the right answers to secure its economy.
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TODAY’S CURRENCY MOVERS
EURUSD, Daily
The hope for a rebound in European stock markets didn’t last long, and equities are selling off again, with the DAX down at the market opening and below the 10000 mark. China’s rate cut yesterday by the People’s Bank of China initiated a rebound in Asian equity markets. It seems the realization in Europe is that the underlying problem is due to the fact that emerging markets are slowing down. The Euro Stoxx 600 has dropped 12% in August so far, and is heading for the worst monthly drop since 2008.
The medium term view on the EURUSD, since price has traded through the May tops at the 1.1430’s and then back under to touch below the 1.14 support on Tuesday, indicates that price still remains at risk of a continued retracement. The risk for longs is a re-visit towards the former major resistance 1.12 area where traders should watch for a potential higher low to develop before any attempt to retest the 1.17 recent high.
The USD gets some support as the U.S. consumer confidence rose sharply to 101.5 in August after climbing to 91.0 in June (revised from 90.9). It was 90.3 a year ago. This is the best level since March. The USD is trading mostly higher against the JPY, GBP, AUD and CHF, ahead of today’s Core Durable Goods Orders data.
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TODAY’S CURRENCY MOVERS
EURUSD, Daily
The EUR is trading generally weaker after posting broad based declines yesterday, as lower energy prices has led to a 1.7% decline in German import price inflation. The current lower inflation trajectory will give the ECB an excuse to talk down the euro; speculators should not rule out any further ECB QE expansion in the wake of the recent global market turmoil. I continue to see EURUSD risk to the downside in the immediate short term as price may attempt to re-test the mid to low 1.12’s where buyers could potentially emerge to support the pair.
European stock markets are broadly higher, following gains on Wall Street and in Asia, with the Shanghai Comp managing to extend gains in late trade closing with a 5.34% gain. The Nikkei closed 1.08% higher and the Hang Seng is up nearly 3%. In Europe, most markets are up around 2%, with the DAX leading the way with a 2.34% gain – the FTSE 100 is up 2.07% and the Euro Stoxx 2.20%.
Downbeat central bank comments are adding to market support with rate hike expectations in the U.S. and the U.K. being pushed back and the increased possibility that the ECB will move further into QE. Volatility is likely to remain high in this climate of uncertainty about the world growth outlook.
Dovish Fed speaking from Dudley, who said a September rate hike “seems less compelling to me” than a few weeks ago, had an impact on the markets with the Dow Jones closing up nearly +3.95% in Wednesday trade.
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EURUSD, Daily
The EURUSD hit a low near the key 1.12 support level on Thursday , I previously posted “I continue to see EURUSD risk to the downside in the immediate short term as price may attempt to re-test the mid to low 1.12’s where buyers could potentially emerge to support the pair.” This I posted when the EURUSD was trading around 1.1311. At the moment, the euro is likely to continue its bounce off the key support as buyers emerged to support price. The risk for short sellers is that the latest bounce could extend out towards the 1.14’s – 15’s. However, traders should be on alert for any price drop below the 1.12’s as this move may raise fears for a return towards the low 1.11’s to mid 1.1150’s.
The rebound on stock markets continued in Asia, with the Shanghai Comp up 1.77% and Japanese markets outperforming. The USD managed to firm up in the wake of renewed optimism about the U.S. economy following yesterday’s revised Q2 GDP, which also helped the U.S. Dow Jones to close up 2.30% on Thursday. Today, the Eurozone stock markets are broadly lower, with Eurozone markets underperforming and the DAX down around 8% for the month. The markets are now hoping that stimulus from central banks may have helped to limit the sell off. Uncertainty about growth and central bank outlooks is adding to market volatility and means the impact of stronger than expected data is unclear.
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EURUSD, Daily
Asian stock markets closed lower again in overnight trade, led by a 1.28% decline in the Nikkei 225, as the Chinese stock markets backed off following a Beijing announcement that large-scale purchases to support the market are not to be expected in the future. This weighed on regional equities, Asian and commodity currencies. At the time of writing, U.S. stock futures are down -125 points, setting the stage for a renewed decline in European stock markets.
Eurozone August inflation data is out later today and it should show a renewed drop in the headline rate closer towards zero in the wake of lower commodity prices, EUR traders will look for further ECB rate clues in language during the press conference on Thursday after the Minimum Bid Rate decision. Traders should also take note that ECB Vice President Constancio said at the Jackson Hole symposium that current inflation forecasts don’t price in recent declines in oil prices. This backs expectations for a downward revision to the central bank’s inflation forecasts at Thursday’s council meeting.
The technical outlook for the EURUSD over the short term is that price is bouncing off the 1.12’s key support level with price potential limited to the upside between the 1.1460 – 1.1530’s. Price looks to be trading at the lower end of the short term upward price channel, and as long as the key 1.12’s hold firm the longs should maintain control over the immediate short term. Short sellers may present themselves on a break below the 1.12’s with support levels seen near the low 1.11’s – 1.1150’s.
Traders should pay some attention to the recent statements by Central Bank “centers of influence members” since a large part of the recent market volatility revolves around the uncertainty of the timing of rate adjustments. The U.S. Fed vice chairman Fischer saying over the weekend that “there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further,” while BoE Governor Carney said that China uncertainty was unlikely to change UK monetary policy. On Friday, Atlanta Fed moderate Lockhart said he’s less resolute on a September hike in wake of market volatility, according to a Market News report. Market turmoil may change the thinking on policy, he said, though the economy is in “quite solid mode of expansion.”
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EURUSD, Daily
The global stock market selloff continued in overnight trade in Asia, with the Nikkei dropping off another 3.84%. The USD traded mostly weaker; oil prices have fallen back off the recent high price near $54.3, and now trades just below $53 after rallying strongly over the three previous sessions. The USD weakness may be linked to the new declines in Chinese and global stock markets, this global selloff has investors and traders rethinking the timing of when the U.S. Fed will tighten rates. This uncertainty regarding the timing of a U.S. rate hike is fueling the current downward pressure on the USD. Markets will remain volatile until the markets see clearer signs from the U.S. Fed.
The technical outlook for the EURUSD over the immediate short term remains to be contained within the Aug 7th – Aug 12th upward slopping price channel. Now that the price has clearly bounced off the 1.12’s key, support current price potential is set to test the upside between the 1.1460 – 1.1530’s. However, any break below 1.12 could open up a 1.11 target. A hypothetical trade set up could be to resell near the 1.1460’s – 1.1530’s for a 1.11 target.
German jobless numbers fell 7K in August, slightly more than expected and leaving the seasonally adjusted jobless rate steady at a low 6.4%. Official numbers still look good, but the improvement on the labour market is levelling off as the market is increasingly tight.
The Reserve Bank of Australia left its cash rate at 2.0%, as widely expected and ignoring recent market turmoil in Chinese stock markets. The AUD is seen as adjusting to the significant declines in key commodity prices and further depreciation seems likely; however, the RBA is now cautious about adjusting rates lower because of the strong Australian property market.
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EURUSD, Daily
Now that concerns about China and forecasted inflation numbers are being lowered, the ECB will now have renewed pressure to expand its QE, traders will be on alert for further ECB clues during tomorrow’s ECB press conference. If the ECB hints at further EU growth concerns, the odds will increase for additional QE which may provide enough of a catalyst to support EUR bear positions over the medium term.
The short term technical outlook for the EURUSD pair remains in an uptrend, however, momentum analysis looks to be weakening , if we can spot a Stochastic bull cross take shape below the 20 line hopes for continued upward price, momentum should remain intact. For the moment we cannot rule out a price move to retest the 1.1460’s – 1.1530’s before the bears emerge once again to potentially carry the pair back towards the 1.11 support area. Traders should also remain alert for price moves out-side of the most recent upward channel line for breakout trade set-ups. I remain committed to selling into EURUSD strength over the coming days.
Chinese markets will be closed both tomorrow and on Friday, which may be good for global markets as it means that the risk of bearish stock market contagion from this source will be set aside until at least Monday.
Market concerns over how central banks will respond to new adjustments in global growth forecast have been a driving force behind the recent financial market volatility. Crude oil prices have been reflecting growth projections with prices now trading lower, around the $43 level. Oil prices today are shapely lower today after a short lived price rebound attempt which posted a largest multi day rally in a quarter of a century. The AUD and CAD have been trading towards the downside within daily chart analysis as money flows into the JPY over the last 5 trading days, as an alternative to the USD, EUR and GBP, this trend should continue until at least we see clearer signals from the U.S. Fed regarding when and if we will see a pending rate hike. This Friday’s release of the U.S. Non-farm Employment Change should provide a clue about the Fed’s next move.
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EURUSD, Daily
EURUSD is trading near the upper weekly Bollinger Bands (20) after peaking higher last week. The move reached a high of 1.1714 and was reversed at a pivotal low from November 2005. This rejection brought the pair down to a level that resisted price moved higher in the beginning of August. This level also coincides with a rising trendline suggesting there is currently more potential in the upside while the immediate downside potential is limited. This view is supported by the Stochastics Oscillator (7,3,3) being oversold and starting to creep higher. The nearest support and resistance levels are at 1.1156 and 1.1369. The 1369 resistance is a daily high from Aug 27th and a pivotal candle low.
The ECB is widely expected to keep policy unchanged, leaving the focus on the updated set of staff projections and the press conference. With growth forecasts overshadowed by concerns about China and lower than expected oil prices keeping headline inflation down, both growth and CPI forecasts are likely to be scaled back. In the base scenario the central bank is pretty much expected to remain on hold into next year, and Draghi will highlight the heightened risks to growth and highlight that the ECB stands ready to act should these risks materialise. Lower than expected inflation meanwhile is almost entirely due to lower oil prices and core inflation is rising, in tandem with money supply growth and a stabilisation in loan growth. If Draghi follows Constancio’s argument that the central bank needs to see through short term volatility caused by energy prices markets are likely to register disappointment, especially as some will be betting on a surprise move already today. So the EUR may rise again.
The IMF is warning the Fed not to tighten policy in a note to policymakers ahead of the weekend’s G20 gathering in Ankara. The Fund argued that the Fed should “remain data-dependent” and not take hasty action “with little evidence of meaningful wage and price pressures so far.” The IMF also calls on the ECB to extend QE, and for the BoJ to stand ready to do the same with its QQE program. The Fund is concerned about low inflation in major economies, arguing that “monetary policy must stay accommodative to prevent real interest rates from rising prematurely,” and also stressed that risks to the global economy have risen.
As central bankers ponder their next policy moves, Bank of International Settlements and IMF take very different views of persistent monetary policy accommodation and the fact that markets continue to rely on central banks. The IMF once again called on the Fed to refrain from hikes and the ECB to expand QE, while the BIS in its latest annual report called on policy makers to shift the view from short term stimulus to longer term growth measures to boost sustainable growth. Even ECB vice president Constancio said recently that monetary policy can only support not create growth and we tend to agree. Furthermore, as the BIS highlighted “signs of growing financial imbalances around the globe highlight the risks of accommodative monetary policies”. Adverse reactions even to the possibility of not so much monetary tightening but a reduction of the still very substantial degree of monetary accommodation highlight the challenges central banks will face when trying to return to more normal conditions. In this situation additional easing may only exacerbate the problem especially as low inflation is more than ever a function of oil prices, rather than the sign of broad based deflation risks, at least for Europe.
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EURUSD, Daily
Draghi’s suggestion that ECB could extend the QE program dropped EURUSD below the rising trendline and the 1.1154 support. Price found support from a pivotal high at 1.1093 which coincides with 50 day SMA. Indications as a whole are mixed as the nearest support is relatively near at a daily pivot candle (1.1018 – 1.1093). This range sent the market strongly higher on August 19th which suggests that the level now holds some psychological value for the euro bulls but at the same time the sideways move and a new pivotal low at 1.1154 are very near. It has already proven to be a challenge for those with long bias today. The US Non-Farm Payroll figures are released today at 12:30 GMT. In case we see strong deviation from analyst expectations price is likely to fluctuate beyond the nearest resistance levels (1.1018 and 1.1154). Today’s NFP number is the last one before the next FOMC meeting and is seen as an important indicator for the Fed when it considers the timing of their first rate hike. Other support and resistance levels: 1.0932 and 1.1334.
German July manufacturing orders dropped 1.4% m/m, a much weaker than expected number. At the same time, June was revised down to 1.8% m/m from 2.0% m/m reported initially and the annual rate came in at -0.6%, versus 7.0% y/y in June. Annual rates over the summer can be volatile, due to the different timing of school holidays throughout the states, but still, the fall into negative territory highlights that while growth seems to have held up over the summer, downside risks to the economy have increased. The data will further fuel rate cut hopes and backs to the renewed jump in Bund futures at the start of the session.
ECB Increases Room to Maneuver: As expected, the ECB left monetary policy unchanged at the August council meeting. But Draghi was tricky, boosting bond as well as stock markets and bringing the EUR down with a technical tweak to the issue limits of QE purchases. In itself that doesn’t change the policy stance, but rather ensures that the central bank doesn’t run into supply constraints in its attempt to see through the current program.
US Atlanta Fed’s Q3 GDPNow was revised up to 1.5% from 1.3% previously following personal consumption and auto sales updates. According to the regional Fed: “The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.5 percent on September 3, up from 1.3 percent on September 1. The nowcast for third-quarter real personal consumption expenditures growth ticked up from 2.6 percent to 2.7 percent following yesterday afternoon’s release on August motor vehicle sales from the U.S. Bureau of Economic Analysis.”
US ISM non-manufacturing index dipped to 59.0 in August after exploding to 60.3 in July (which was the highest print since August 2005). It’s still the 3rd highest print on record however, though declines were broad-based. The business activity index slipped to 63.9 from 64.9. However, the employment index dropped to 56.0 from 59.6 previously. New orders fell to 63.4 from 63.8. New export orders dropped to 52.0 versus 56.5. Prices paid declined to 50.8 from 53.7.
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S&P 500 UPDATE
S&P 500, Weekly
As the US and Canada are celebrating the Labour day the markets are likely to be subdued today. We will take this opportunity to visit the US stock market as it has had strong moves since my last report on stock indices. I suggested in my previous report August 12th (Click here to read) that S&P 500 index future (ES) will move lower after making lower highs and, that it would be the time to enter the short side of the market by selling rallies.
Two weeks ago ES found support at a weekly pivotal low from October last year and rallied strongly after printing a low of 1831. This suggests to me that the price volatility will settle down for the near term. In other words, I don’t believe ES will move below 1813 but that it will fluctuate between it and 2054 resistance over the coming week. MFI and RSI are oversold which hasn’t happened since October 2014. This supports my view that market was over stretched to the downside at 1831. Also, price has moved outside the regression channel and is therefore very much in line with my predictions on May 7th: stocks are in a topping phase.
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TODAY’S CURRENCY MOVERS
EURUSD, Daily
In Friday’s report we identified 1.1093 – 1.1154 as a likely range to contain EURUSD action after the NFP report. Apart from a spike to the upside trading was maintained well within the range. The low for the day was 1.1090 while the high printed at 1.1189 and the close inside the range at 1.1149. As a result the last week’s candle turned into a narrow range bar that signals hesitation. In relation to daily Bollinger Bands (20) price is firmly in the mid-range and it is therefore challenging to estimate the future moves. Today’s euro zone GDP release is out at 09:00 GMT. The number is expected to be a confirmation of the preliminary release. EURUSD is finding some support from 1.1154 – 1.1170 range but the bias is on the downside. Next important support levels are at 1.0930 and 1.1018.
ECB’s Noyer says markets are well prepared for Fed hike. The Bank of France Governor said the “Fed’s communication has been done well and in detail, adding that an increase in the federal funds rate is inevitable and the markets are well prepared. It is not the timing that matters. Draghi’s dovish comments last week were clearly also designed to remind markets that Europe is in a different situation and that a hike in the U.S. won’t mean tighter policies in Europe, which should also help to limit upward pressure on the EUR if rate hike expectations in the U.S. are being pushed out.
ECB’s Weidmann: Direct impact of China equity slump limited. The Bundesbank President said at the sidelines of the G20 meeting that the direct impact of the stock correction in China and that the Bundesbank sees no reason to change its growth forecast for Germany. Still, he stressed heightened uncertainty about the outlook and said risks have shifted, while at the same time repeating once again that monetary policy cannot solve all problems. This seems to be the general tenor of ECB comments at the moments, with officials trying to dampen market reliance on central bank intervention to fix the economic outlook, although words alone won’t change that.
Copper and other metals are up after Glencore announced output cuts at two of its copper mines, which will cut supply by about 400 thousand tonnes. Copper prices are now up by 1.7% on the day. Oversupply has been a big issue in the copper market, similar to iron ore, crude and many other raw materials. Glencore’s decision comes after data last week showed Chinese manufacturing PMI dove to a three-year low in August. China is the world’s biggest consumer of copper, and many other commodities. Copper prices hit cycle lows on Aug-24, during the recent height of the recent Chinese stock market panic, but have since rebounded by 5.5%.
German labour growth accelerates sharply. Latest data show total labour costs up 0.9% q/q in Q2, bringing the annual growth rate to a whopping 3.1% y/y, from 2.8% y/y in the previous quarter and versus just 0.7% at the start of 2014. Gross wages and salaries rose 3.4% y/y in Q2. The tight labour market is boosting wage demands and settlements and with inflation at very low levels, real disposable income is picking up and supporting private consumption, but also marked increases in property prices, especially in the urban hot spots. Amid sluggish productivity growth, the increases also look unsustainable and will undermine competitiveness and are likely to push up unemployment in the medium term, with the decline in jobless numbers already starting to peter out.
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TODAY’S CURRENCY MOVERS
EURUSD, Daily
The 1.1214 resistance worked again yesterday and turned EURUSD down after the pair rallied from the support area identified in yesterday’s report. The pair keeps on moving sideways between a pivotal support at 1.1085 – 1.1150 and resistance at 1.1214. The pair also seems to honour 50 period SMA in the 4h timeframe as the slightly descending moving average has been limiting EURUSD advances lately. Today’s candle has potential to be a decisive one as it will create another lower high should it close down. There are two lower lows already and should today’s bar close below previous candle low another lower high will be created. Price has created lower highs in intraday charts, which suggests that the pair should move further into the aforementioned pivotal support. Apart from this pivotal support area support and resistance levels are at 1.0930, 1.1018 and 1.1214.
ECB’s Reinesch: Loose Monetary Policy support structural reforms. The governor of Luxembourg’s central bank said the “current accommodative monetary policy” provides a “window of opportunity” for structural reform. He stressed that “favourable financing conditions will offset possible short-term adjustment costs and will bring forward the longer-term benefits of reform”. According to Reinesch these “could focus on simplifying the administrative burden involved in creating a new firm or in growing a firm beyond arbitrary thresholds which trigger increases in compliance costs.” The ECB has been urging enhanced structural reforms for a while now, but in our view the risk is that without market pressure, governments will continue to shy away from any measures that could risk votes.
According to Eurostat the Seasonally adjusted GDP rose by 0.4% in both the euro area (EA19) and the EU28 during the second quarter of 2015, compared with the previous quarter, according to a second estimate published by Eurostat, the statistical office of the European Union. In the first quarter of 2015, GDP grew by 0.5% in both areas. Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.5% in the euro area and by 1.9% in the EU28 in the second quarter of 2015, after +1.2% and +1.7% respectively in the previous quarter. During the second quarter of 2015, GDP in the United States increased by 0.9% compared with the previous quarter (after +0.2% in the first quarter of 2015). Compared with the same quarter of the previous year, GDP grew by 2.7% (after +2.9% in the previous quarter).
The US consumer credit expanded 6.7% in July. It is a sign of confidence most likely propelled by low fuel prices and relatively steady job market. Outstanding consumer credit, a reflection of nonmortgage debt, rose $19.1 billion or at a 6.7% annual rate in July, the Federal Reserve said Tuesday. Consumer credit has been trending higher. It has increased each month for nearly four years. July credit growth was roughly in line with economists’ expectations. They had predicted a $19.5 billion increase. Revolving credit, mostly credit cards, rose at a 5.7% annual rate. In June it climbed at an annual rate of 10%. Non-revolving credit, made up largely of auto and student loans, increased at a 7% annual rate, compared with 9.4% in June. Almost 70% of US GDP growth comes from consumer spending and steady growth in consumer credit therefore is a positive indication for the economic growth.
The US Labor Market Conditions Index (LMCI) rose by 2.1 points in August. This was the largest monthly improvement in US labor markets over the last six months. There were also revisions for previous months’ readings 2015 were revised up by a net 2.3 points in yesterday’s release. This measure contracted by 370 points from January 2008 to June 2009 but now it has made up about 90% of the 2008-09 deterioration.
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AUDUSD CREATING A SHOOTING STAR AT RESISTANCE?
AUDUSD, Daily
AUDUSD rallied on the back of positive developments in the price of copper and Chinese stock market yesterday. Today the pair hit a resistance level at 0.7045 and after a brief move above the level the pair failed to maintain the gains and rolled over. The 0.7045 level supported price on August 24th and created a weekly low that was later on penetrated. Stochastics is trying to move higher from oversold levels but in a downtrend such moves are typical and don’t provide the same value as in a sideways range. Oscillators tend to fluctuate near oversold levels when markets are trending lower.
The fact that 2 sd regression channel high coincides with today’s high suggests that this level is a potential turning point for AUDUSD. The level also coincides roughly with a 23.6% Fibonacci level at .4029. The next support level is at the recent low (0.6900) while weekly chart suggests that the pair has further to fall and should eventually hit a support level at 0.6532.
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TODAY’S CURRENCY MOVERS
EURUSD, Daily
Yesterday’s slight upward bias accelerated a bit during the New York session but the pair has not been move beyond the 1.1208 – 1.1332 area which I suggested will limit the upside. Currently EURUSD is trading near a pivotal resistance at 1.1320 and has reacted lower from just below the resistance level. After edging higher for a few days the pair is now taking a breather and moving sideways. Significant daily support and resistance levels are: 1.1214 and 1.1334. Intraday support and resistance levels are at 1.1244 and 1.1320.
ECB’s Coere: Growth too weak to boost jobs. The Executive board member said ECB bond purchases will continue as long as necessary, as growth remains too weak to create sufficient jobs. In the text of a speech published on the ECB website, Coeure said France still has some way to go on growth and that he sees “room for manoeuvre” on Greece once trust is restored.
Italian refinancing costs fall. Italy sold EUR 4 bln of 2022 bonds with a coupon of 1.45% at an average yield of 1.37%, down from 1.60% at the previous auction on July 13. It also sold EUR 1.5 bln of 2046 bonds with a coupon of 3.25% at an average yield of 2.96%, down from 3.24% in July. Finally EUR 2.25 bln of 2018 bonds with a coupon of 0.25% were sold at an average yield of 0.24%.
The BoE left policy unchanged as widely expected and the minutes, released at the same time, showed an 8-1 majority in favour of steady policy, with McCafferty continuing his dissent in favour of a rate hike. However, while Sterling and yields spiked in the wake of the initial announcement, indicating lingering hopes for a more dovish statement and a reversal to a unanimous vote, yields quickly headed south again, as the statement indicated that the tightening bias is being eroded by rising concerns about the global growth outlook. So while the tightening bias remains intact for now, the BoE, is effectively taking a wait and see stance. Expectations of a dovish BoE statement were based on mixed confidence data and rising concerns about the global growth outlook. The BoE’s minutes also noted the dip in the Markit/CIPS composite PMI for August to the lowest level since May 2013. However, while bank staff lowered their estimate of Q3 GDP growth to 0.6% from 0.7%, the minutes noted that “the composite expectations index from the Markit/CIPS surveys had been steady, retail sales indicators had remained solid and consumer confidence had risen a little in August from already high levels”. In addition “the RICS survey had suggested a supportive balance of demand versus supply, and mortgage approvals in July had been a little stronger than expected”.
US reports revealed a disappointing round of July wholesale trade figures yesterday that trimmed our Q2 GDP growth estimate back to an unrevised 3.7%, though we still assume 3.0% GDP growth in Q3. The August trade price report revealed huge export price declines, with big drops for both the commodity and core export and import aggregates that were reminiscent of the plunge back in January in the face of a dollar pop, oil price declines, and a weak global economy. As such, we see little potential for improvement in the monthly trade deficits despite lower oil prices given weak export valuations. We did see a welcome 6k initial claims drop to a lean 275k, though we expect a restrained 205k September nonfarm payroll rise as the inventory overhang and factory sector restraint continues to put pressure on the economy.
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GOLD TRADING NEAR SUPPORT AREA AFTER THREE DOWN WEEKS
Gold, Daily
Gold still in downtrend as confirmed by downward price channel and yet another lower high in the weekly picture. This was once again formed at levels that used to support price and at 38.2% Fibonacci level identified in the previous report. Price rallied to the level in response to a strong move lower in US stock market. Since then price of gold has moved down for three weeks and is now trading close to the top of the two weeks’ sideways range (1104) from the end of June and the lower 1.5 sd Bollinger Band. Over the last two days price has been moving sideways at this 1103 – 1104 support, a level that resisted price advances at the end of July. Price is also trading at the lower daily Bollinger Bands while Stochastics are oversold. Daily support levels are at 1080 and 1103 while resistance levels are at 1117 and 1147.30.
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TODAY’S CURRENCY MOVERS
EURUSD, Daily
EURUSD moved sideways yesterday creating a spinning top candle. This took place at 1.1334 resistance that we identified in the previous TCM report. A spinning top that takes place at a resistance after a move higher is a reversal sign. Stochastics Oscillator is oversold and rolling over which supports the view that price reversal is likely to take place. Intraday support is currently at 1.1282, while there is resistance at 1.1328. The next support level is at 1.1214. The Fed meeting being so near price movements are likely to remain small.
FOMC Forecast revisions at this week’s FOMC meeting should reveal sharp reversals of the June FOMC revisions for GDP and the jobless rate, as growth prospects should be boosted despite global market volatility. We expect all the 2015 GDP forecasts to be raised by 0.4%-0.6% after June’s downward bumps of 0.4%-0.8%, while all but the lowest jobless rate estimates are lowered 0.1% across the 2015-2017 period after 0.1%-0.2% June boosts in the lower end estimates. There is a possibility that policymakers low-balled their estimates in June to facilitate upward revisions at this month’s meeting that would help to justify rate lift-off. The 2015-16 PCE chain price estimates were also low-balled in June, but the ensuing oil price plunge eliminated the need for revisions. The core PCE chain price figures have tracked official projections, though forecast ranges may be narrowed. We expect big downward bumps in the high-end Fed funds estimates, as officials “tap down” rate expectations in keeping with a “one and done” 2015 rate strategy. See our policy outlook page for a table of our assumptions for the Fed’s revised forecasts.
French August CPI came in below expectations at a six-month low of 0% y/y, ebbing from the +0.2% rate seen in July. The median forecast had been for a rise of 0.2%. The EU harmonized figure slipped to +0.1% y/y from 0.2% in the previous month, where it had been expected to remain. The data follows a string of disappointing data out of France, while recent energy price declines will be further feeding disinflationary conditions.
RBA minutes (Sep 1 meeting) indicated policy remains neutral, but officials warned that international economic developments (mainly from China) had raised financial market volatility and global risks. On the other hand, the depreciation of AUD due to declining commodity prices, was expected to support growth. The minutes also indicated officials weren’t sure on which assets Chan had been sold as authorities worked to devalue the yuan, or which assets were being purchased by those looking to take capital out of the country. AUD-USD is slightly lower non the dovish minutes.
Canada ran a surprise C$1.9 bln surplus in the previous fiscal year, according to the Finance Department’s Annual Finance Report for FY2014-15 that ended on March 31. The Harper government had projected a C$2.0 bln deficit in the April budget outlook. The unexpected surplus was due to better than expected revenue growth. The challenge, of course, is for the current fiscal year, for which the government projected a C$1.4 bln surplus.
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TODAY’S CURRENCY MOVERS
EURUSD, Daily
EURUSD closed yesterday below the previous day’s spinning top candle low. This is further confirmation for the bearish view that I had yesterday. Yesterday’s analysis pointed to a reversal and provided a resistance to trade against. This 1.1328 resistance worked to a pip yesterday as price moved to 1.13287 after the publication of this report yesterday. The pair has rallied to the spinning candle low in the Asian session today and reversed lower once again. EURUSD has since penetrated 4h lower Bollinger Bands (20) and trades near 50 period SMA in 4h chart. The next resistance area is at 1.1285 to 1.1300, roughly coinciding with 23.6% Fibonacci retracement at 1.1305 while next significant daily support is found at 1.1190 with 61.8% Fib level nearby at 1.1196. The 50% retracement level coincides with a daily high at 1.1230 (from 8th September) and could cause a small rally.
Several ECB officials have been voicing their opinions on the bank’s QE program. ECB’s Constancio: ECB has scope to expand QE if necessary. The ECB’s Vice President highlighted that compared to the programs introduced by Fed, BoE and BoJ, the ECB’s asset purchase program has been relatively small.ECB’s Nowotny: QE extension or expansion possible. The Austrian central bank head said in an interview with Die Presse, that the asset purchase program has had a number of positive effects while highlighting that the low inflation in the Eurozone is a big problem for the ECB. Interestingly, he didn’t blame lower oil prices, but the dramatic deterioration in the economic outlook for emerging markets, adding that the main problem isn’t so much China as countries like Brazil. ECB’s Weidmann warns cheap money doesn’t help to boost sustainable growth and production potential, but in an interview with Germany’s Sueddeutsche Zeitung, he warned again that it increasingly harbours risks also to financial stability. Weidmann was recently appointed as new head of the BIS, which in its latest annual report also warned that markets remain too reliant on central bank stimulus, in contrast to the IMF, which is calling for ever more easing measures to support world growth.
The lack of major negative surprises in today’s data keeps the FOMC on course to announce a 25 bp rate hike on Thursday. Though it remains a close call. While the Fed is mostly meeting its mandate on economic growth (we’re forecasting a 3.0% GDP growth rate for the second half of 2015) and the labor market, the renewed downturn in commodities may reduce confidence that the 2% inflation goal will be met anytime soon. And various exogenous factors, including worries over slowing growth abroad and increased volatility in the financial markets, add to the dovish, no hike case. Unfortunately the FOMC has conditioned the markets to react bearishly to hints of normalization such that there will never be a “good time” to commence liftoff. There’s been no need for the Fed to maintain its emergency policy stance all these years, and a 25 bp hike should have only limited impact, especially if policymakers continue to indicate a gradual path for the future.
US reports yesterday revealed a largely expected round of August retail sales and July business inventory figures that had no net impact on our GDP estimates of 3.0% growth in Q3 after an unrevised 3.7% figure in Q2, with real consumption growth of 3.0% in Q3 after a Q2 growth boost to 3.4% from 3.1% that was previously signaled by strong QSS data. We also saw a weak round of September Empire State figures that extended August weakness, alongside a big 0.4% August industrial production drop after a 0.9% (was 0.6%) July surge that reflected an even bigger than expected vehicle sector gyration around retooling. Today’s figures did little to alter the sales and inventory outlook, beyond reinforcing the view that factories face big headwinds from an inventory overhang and a vehicle sector drop-back after a July pop, and a petro-sector recession that’s been aggravated by further oil price declines.
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TODAY’S CURRENCY MOVERS
EURUSD, Daily
After moving lower EURUSD as expected but then rallied quite strongly and turned a down day into a close above the opening price for the day. The rally started after the pair reversed below my 1.1230 support at 1.1214 and was intensified by the US CPI figures. The headline CPI came in at disappointing -0.1% while the core CPI remained unchanged at 0.1%. A negative print on August CPI gave the Fed a last minute reminder that it continues to be well shy of its inflation mandate. This gave the markets a reason to sell the USD almost across the board. Only USDJPY bucked the trend yesterday. EURUSD then ran into a resistance slightly above my 1.1305 resistance and is trading sideways underneath it at the time of writing. This created a pin bar and a higher low in the daily chart. A pin bar that creates a higher low is a positive indication in this context and this has encouraged traders to push the price higher today. There however is a pivotal resistance ahead (1.1328 – 1.1373) while support levels are at 1.1230 and 1.1196. This being the Fed day I don’t expect the markets to push through the resistance into new highs before the rates announcement.
EURCHF is fractionally lower following the SNB announcement of unchanged policy and renewed pledge to intervene in the currency market if needed to counter franc appreciation. The central bank continues to class the franc as being “significantly overvalued.” EUR-CHF dipped to the 1.0950 from pre-announcement levels around 1.0975, which is little more than a 0.2% decline, and the cross remains well within the range it posted yesterday. Swiss policymakers have had success in undermining the franc’s status as a safe haven, with deeply negative deposit rates having caused a steady drip feed of yield-searching Swiss fund outflows. The franc is trading nearly 6.5 % lower than levels seen a couple of months ago, and the cross last week traded above 1.1000 for the first time since the SNB abandoned its former cap on the franc in January.
ECB and SNB – Waiting for the Fed: ECB council members continued to sound dovish as the focus shifts to tomorrow’s FOMC announcement. If the Fed delays the start of the tightening cycle it will make additional easing moves by the ECB more likely and that in turn would likely see the SNB follow suit with additional steps. Officials may be eager to stress that China’s exchange rate adjustment was not the start of a global currency war, but at least in Europe, it would well start to look like one.
FOMC Forecast revisions to be released at Thursday’s FOMC meeting should reveal sharp reversals of the June FOMC revisions for GDP and the jobless rate, as growth prospects should be boosted despite global market volatility. We expect all the 2015 GDP forecasts to be raised by 0.4%-0.6% after June’s downward bumps of 0.4%-0.8%, while all but the lowest jobless rate estimates are lowered 0.1% across the 2015-2017 period after 0.1%-0.2% June boosts in the lower end estimates. We believe policymakers low-balled their estimates in June to facilitate upward revisions at this month’s meeting that would help to justify rate lift-off. The 2015-16 PCE chain price estimates were also low-balled in June, though we do expect 0.2%-0.3% downward bumps for 2015. The core PCE chain price figures have tracked official projections, though forecast ranges may be narrowed. We expect big downward bumps in the high-end Fed funds estimates, as officials “tap down” rate expectations in keeping with a “one and done” 2015 rate strategy.
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TODAY’S CURRENCY MOVERS
EURUSD, 240 min
In yesterday’s report I drew attention to EURUSD creating a pin bar and a higher low. This indicated further bullishness for euro but the upside was capped by the 1.1328 – 1.1378 resistance area. As expected, the pair didn’t move beyond the resistance before the Fed announcement yesterday. The decision to hold the rates at zero propelled EURUSD to the session high of 1.1441. Today, Stochastics are in the overbought region while the price is approaching the upper daily Bollinger Bands. In the weekly picture, price is inside the upper Bollinger Bands and right below the 50 week SMA. This is a reason for some caution for the euro bulls. The price is approaching the 1.1463 – 1.1520 resistance area after we’ve seen some follow through for yesterday’s upward momentum. The nearest support levels are 1.1374 and 1.1388.
FOMC left rates unchanged, citing concerns over global weakness. The key sentence in the statement was: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” The Fed again noted weakness in net exports, and the fact that market based inflation measures had moved lower. It’s also “monitoring developments abroad,” while it sees balanced risks on the economy and labor market. The FOMC again indicated it will be appropriate to raise rates when it sees further improvement in the labor market and is “reasonably confident” that inflation will move back to the 2% target over the medium term. Lacker dissented in favor of a 25 bp hike. The Fed did reiterate that the economy is expanding at a moderate rate, housing has improved further, and the underutilization of labor resources has diminished.
Yellen said U.S. monetary policy is directed toward achieving the dual mandates set out by Congress. Of course policy changes have many cross currents, and capital flow implications. The exchange rate is one of a number of channels through which policy works. There are effects on the exchange rate, and yes the Fed needs to take those into account. The risk of a government shutdown played NO role in the Fed’s decision not to hike rates. Yellen said there is rationale for a rate hike now, but noted that financial conditions have tightened to some extent, and the situation abroad has become “more uncertain of late.” She added though, that the she doesn’t want to overplay the impact of overseas developments. She also reiterated that the path of policy is more important than the timing of the first move, and that most members still see a hike this year. The decision won’t depend on any particular data. In answering the first question, she said we can’t expect uncertainty to be fully resolved, but the Fed wanted to take a little more time to assess conditions. She has no recipe for what the FOMC wants to see before tightening. On the possibility for October, all meetings are “live.” So October remains a possibility, and the Fed would call a press conference if needed.
Fed funds futures are on the move higher after the FOMC remained on hold. Though prices in the futures market are still gyrating, the market is currently pricing in a 25 bp hike for December with a little better than 50-50 probability. We suspect improved market stability and less angst over global developments will open the door for an October hike, though soft inflation should make December a better bet.
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