Daily Forex Market overview by IFC Markets

[Akriti]

Risk-off Shadows Currency Markets as War Concerns Accumulate over Syria

Currency markets have been moving by risk averse due to concerns over military strike of USA, France and UK against Syria. The Japanese Yen has been strengthening considered safer currency while Aussie and Sterling have been losing as riskier currencies, the Euro and the US dollar were mostly unchanged.

US equities closed with losses on Tuesday session with S&P 500 falling by 1.59% and the Dow Jones Industrial Average declining by 1.14%. Asian shares followed also weighed by possible attack to Syria with NIKKEI 225 closing lower by 1.51% and Hang Seng dipping by 1.48%. The USDJPY last night continued all the way to a new 2-weeks low at 96.87 and then made technical retracement back to 97.33 as oscillators went into oversold zones.

Concerning losing currencies, the Aussie against the greenback dropped below support at 0.8932 and is moving towards 3-year low at 0.8846. The Australian dollar is under selling pressure due to investor’s risk- off as well as on dovish comment by RBA Governor, Glenn Stevens the previous week, in addition the S&P/ASX 200 declined by 1.05% earlier today. The sterling drew resistance at line at 1.5549 and then plummeted to 1.5505 versus the US dollar, as the USA, UK and France are finalizing plans for military operations against Syria. It is likely that we would see further selling pressure on these currency pairs because comments by UK Prime Minister David Cameron and US Secretary of State, John Kerry, indicating that are convinced of the use of chemical gas by Syrian government.

Lastly, the Euro against the US dollar remains in 1.3408/1.3328 sideways zone, losing slightly in immediate trading due to weaker than expected German Consumer Climate. On the data front, M3 Money Supply for EZ would be released and then investors will focus on BOE Governor Speech and US Pending Home Sales.

 

[Akriti]

Risk Aversion Gets Milder With Global Equity Indices Rebounding, US Dollar Strengthens

Milder risk aversion has led the USDJPY to recover previous losses as the military strike to Syria is delaying. UN Security Council is not convinced about the use of chemical weapons with Russia and China opposing military action. US President Barack Obama did not decided on whether to launch a retaliatory strike with just his allies, UK and France sidestepping UN, while UK and France say that they are ready to go.

Last night, US indices bounced up on technical retracement as well as on calmer risk aversion, S&P 500 rose by 0.27%, Dow jones industrial Average gained 0.33% and NASDAQ closed up by 0.41%. Asian indices followed in recouping previous session’s losses with NIKKEI 225 surging by 0.91%. NIKKEI was also supported by weakening Japanese Yen, with the USDJPY bouncing back and rising as of typing above the 50.0% resistance of 99.14 to 96.82, at 97.89. Retracement is likely to be capped by 61.8% at 98.23 because most probably risk aversion will return stronger in the market with the military strike launch.

The greenback is getting stronger as of writing against its major peers. The US dollar index penetrated its key resistance at 81.68 and is heading for 81.88 ahead of Preliminary US GDP release for the 2nd quarter, expected to improve to 2.2% and Unemployment Claims. The Euro versus the US dollar was under increased selling pressure and dipped from 1.3382 to currently 1.3269 earlier today with investors anticipating German unemployment and CPI report later on Thursday.

Elsewhere, the British pound rebounded yesterday against the greenback on less hawkish than anticipated BOE Governor, Mark Carney speech reaching resistance at 1.5549. It seems though that the Syria risk still weighs on the currency pair, likely to drive it back below 1.55. The USDCAD found key resistance near almost 2-year high at 1.06 the previous week and retraced to 1.0472, at the moment is consolidating due to stronger US dollar and recently rising Oil prices are not helping loonie.

 

[Akriti]

Greenback Gets Stronger, USDJPY Eases on Data and on Risk of Syria

The US dollar soared to 4-week high on growing expectations that the FED will reduce the amount of asset purchases per month as macro data have been positive in the recent sessions. Yesterday the US Bureau of Economic Analysis said that the GDP grew by 2.5% in the 2nd quarter, faster than earlier estimated at 1.7% and today is expected that the Consumer Spending will display increase in July as well. The US dollar index advanced to 82.03 which is the 161.8% of the correction from 81.68 to 81.08, thus we would expect some consolidation before the upside resumes, ahead of next resistance at 82.50.

The USDJPY eased lower to support at 98.06 firstly due to stronger CPI and Unemployment for Japan and on consolidating equities. The Japanese National CPI for July was in line with expectations rising by 0.7%, up compared to 0.2% in June, while National CPI excluding fresh food rose by 0.7%, higher than projected and up from previous month of 0.4% increase. Unemployment rate surprisingly dropped to 3.8% in July from 3.9% in June and lastly Industrial Production advanced by 3.2% in July up from -3.1% in June. The recent data supported well the Japanese Yen, setting pressure on the USDJPY which was also weighed by falling NIKKEI225 on risk of military strike against Syria by USA, UK and France. Downside momentum resumed as of writing with the USDJPY sinking lower, was lastly seen at 97.91.

The Euro was one of the biggest losers against the greenback in the recent trading as risk averse sentiment increased selling pressure on the common currency. In addition, yesterday weaker German jobs report and CPI, as well as previous comments of German Chancellor Merkel about Greece that was a mistake to accept it as a full member in the Euro zone, made the Euro heavier. However, the August 20 CFTC report indicated that the net long position in the Euro increased by $3.5B to $6.2B, it seems now that the pair is getting into correction phase and could head towards the 61.8% of the 1.2755 to 1.3451, at 1.3020.

 

[Akriti]

Aussie Strengthens as RBA Holds Key Rate at 2.5%, USDJPY Continues Upside

The RBA earlier today at its meeting decided as it was expected to maintain key rate at 2.50%. In its statement, the RBA reiterated that expects the mining investment to drop with the economy in a transition phase, growth is a bit below trend, unemployment rose slightly and inflation is under control. Moreover, RBA said that even though the Australian dollar depreciated still remains at high levels and its value could reduce further, helping growth. The AUDUSD rose above psychological level at 0.90 and was lastly seen at 0.9044. We consider that the currency pair is in 0.9232/0.8847 range trading pattern with longer term prevailing downtrend likely to drive prices lower eventually.

The USDJPY yesterday breached key cap at 99.14 and continued higher today underpinned by BOJ data that the monetary base growth pace increased to 42% from 38%. That improved risk sentiment driving NIKKEI 225 higher by 2.81% which dragged the currency pair to fresh 1-month peak at 99.69, which is a bit away from the psychological 100 level. We expect the USDJPY to be weighed by resistance at 100 and likely the risk on Syria to resume increasing pressure on the pair, in addition we are eagerly anticipating the BOJ monetary statement on Thursday although no change is projected.

Elsewhere, the US dollar against the swissy surged as high as 0.9371 straight from support at 0.9168. The USDCHF found support near the bottom of the
0.9750/0.9145 longer term wide range and turned to upside bias. Surprisingly stronger GDP data for Switzerland did not helped much its currency that kept losing against the greenback.

Looking ahead, the most important event to watch today is the US ISM Manufacturing PMI indicator. Tomorrow we will be focusing on Aussie GDP figure, European Services PMI, EZ Retail Sales and later on the Bank of Canada Rate Statement.

 

[Akriti]

Aussie Strengthens as RBA Holds Key Rate at 2.5%, USDJPY Continues Upside

The RBA earlier today at its meeting decided as it was expected to maintain key rate at 2.50%. In its statement, the RBA reiterated that expects the mining investment to drop with the economy in a transition phase, growth is a bit below trend, unemployment rose slightly and inflation is under control. Moreover, RBA said that even though the Australian dollar depreciated still remains at high levels and its value could reduce further, helping growth. The AUDUSD rose above psychological level at 0.90 and was lastly seen at 0.9044. We consider that the currency pair is in 0.9232/0.8847 range trading pattern with longer term prevailing downtrend likely to drive prices lower eventually.

The USDJPY yesterday breached key cap at 99.14 and continued higher today underpinned by BOJ data that the monetary base growth pace increased to 42% from 38%. That improved risk sentiment driving NIKKEI 225 higher by 2.81% which dragged the currency pair to fresh 1-month peak at 99.69, which is a bit away from the psychological 100 level. We expect the USDJPY to be weighed by resistance at 100 and likely the risk on Syria to resume increasing pressure on the pair, in addition we are eagerly anticipating the BOJ monetary statement on Thursday although no change is projected.

Elsewhere, the US dollar against the swissy surged as high as 0.9371 straight from support at 0.9168. The USDCHF found support near the bottom of the
0.9750/0.9145 longer term wide range and turned to upside bias. Surprisingly stronger GDP data for Switzerland did not helped much its currency that kept losing against the greenback.

Looking ahead, the most important event to watch today is the US ISM Manufacturing PMI indicator. Tomorrow we will be focusing on Aussie GDP figure, European Services PMI, EZ Retail Sales and later on the Bank of Canada Rate Statement.

 

[Akriti]

All Eyes on FOMC Statement and Projections

The US dollar index remains steady in 81.19/81.07 tight range ahead of the release of the two-day FOMC policy meeting outcome. It is generally expected that the Fed would start reducing its $85B program. Market consensus is that the Fed most likely will cut down purchases of the long-term Treasury securities from $45B to $35B and MBS purchases program could be tapered by $5B, falling from $40B to $35. Thus we are expecting a $10B-$15B reduction today to be announced by the Fed alongside with FOMC projections.

As you can notice on Fundamental Analysis table, US Unemployment Rate dropped from 8.1% in August 2012, just before starting MBS purchases at $40B pace per month, to 7.3% in August 2013. Indicating that the accommodative policy succeeded in increasing employment and thus economists consider that continuation would destabilize financial markets. However, recent figure on Employment has been disappointing together with the downward revision of the July employment, as a consequence uncertainty increased over how much the bond buying program would be tapered.

The single currency versus the greenback was also in sideways trading near its recently earned resistance at 1.3381 since it was underpinned yesterday by improved ZEW Economic Confidence indicator. It is likely to remain in 1.3381/1.3321 tight range until FOMS Statement.

The Bank of England is also going to release its minutes of the September 5 meeting which includes the Asset Purchase Facility votes and the key rate votes. Economists’ project is that all 9 members of the committee unanimously voted to hold policy unchanged. The British pound against the US dollar eased to 1.5887 from 8-month peak at 1.5961, weighed by key resistance and amid some profit taking. Traders are reluctant to act before Bernanke’s statement.

Lastly, the USD/JPY is also fluctuating in 99.35/99.02 sideways zone looking ahead for Federal Open Market Committee announcement. Even though we have built up a consensus that Fed would modestly scale back quantitative easing we would avoid betting on that since we consider risk taking greater than potential reward.

 

[Akriti]

Fed Shocks FX Markets Holding Asset Purchases Unchanged at 85B, USDIDX to 7-month Low

The Federal Reserve decided to shake the financial markets by leaving its asset purchase program unchanged in a highly surprising move. As we have previously addressed, surveys from Reuters and Bloomberg was giving more chances to asset tapering. However, FOMC committee said that “decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.” Therefore the US quantitative easing remains steady at $40B purchases of mortgage-backed securities per month and $45B purchases of longer-term treasury securities per month. The interest rate would remain unchanged at 0-0.25% as long as the unemployment rate is more than 6.5% and inflation projections for the next 1-2 years are not more than 2.5%.

Starting from FX markets, we saw yesterday the US dollar losing substantially against its major peers with its index sharply dipping to support at 80.03 from earlier level at 81.15, losing more than 1.3%.

The Euro jumped to a new 7-month high against the US dollar taking advantage of the shocking Fed decision to maintain monetary policy. The EURUSD gained more than 1.5% as penetration of key resistance at 1.3451 triggered more buy orders. The other European currency, the GBPUSD also moved sharply to fresh 8-month high, hovering above key psychological resistance at 1.60 and reaching as high as 1.6161.

Concerning Federal Reserve Projections, the 2013 GDP growth was downgraded to 2.0-2.3% compared to June projection of 2.3-2.6%. Perhaps the decision to hold asset purchases at $85B was to support growth, while inflation is projected to be between 1.1-1.2% in 2013. For 2014 Inflation was downgraded to be between 1.3-1.8% in Sep.18 report compared to 1.4-2.0% in June 19 projections. Lastly, one of the key thresholds for key rates increase, the unemployment rate was projected to be between 7.1-7.3% in 2013 and ranging in 6.4-6.8% in 2014, almost the same compared to June report. Most members of the committee are expecting that the timing of key rate rising would be in 2015, where the highest of projected unemployment rate is at 6.3%, growth estimated to be above 3.0% and inflation approaching its 2.0% target.

 

[Akriti]

Major Pairs Go into Narrow Trading after Volatile 2-day Sessions

FX markets extend into sideways following an eventful week. Previously we saw the Fed refraining from asset purchases reduction and as consequence US dollar was lost broadly against its major peers on Wednesday US evening session and continued its slide on Thursday as well. Although contrary to other major currencies the Japanese Yen has been under selling pressure yesterday due to risk-on. In addition, a member of BOJ board said that monetary stimulus might expand further since inflation target of 2.0% is still far away.

The USDJPY therefore after drawing a support line at 97.76 started recovering back previous lost ground and rose even higher than before Fed’s announcement achieving resistance at 99.59.

On Thursday evening a series of positive US data was announced and perhaps that was another reason for USDJPY’s upside unexpected performance. US Jobless Claims stood at 309K the previous week up compared to two weeks ago but well below expectations of 331K claims.

Moreover, Existing Home Sales for August was stronger and Philly Fed Manufacturing Index for September was doubled compared to estimations suggesting that demand in US spending, investments and demand is strengthening more than estimated. Thus, in our opinion USDJPY would continue higher and the US dollar index bottomed at 80.03 likely providing a nice buy opportunity for the longer term, with data improvement of course. Fed has reiterated that is data dependent, thus we get closer to asset tapering with every positive surprise.

Now let’s check other major pairs like the EURUSD which is consolidating in 1.3565/1.3506 tight zone after advancing by 1.58% from 1.3353 to top of the last 7-months at 1.3565. On Monday EZ PMI Manufacturing indicators would be released and we are alerted for that. We saw the GBPUSD rising to 8-month cap at 1.6161 but was weighed by sluggish Retail Sales in August retreating to 1.6024. A technical correction is always welcome as it gives the chance for further positioning in the market and indicates a healthy up trend.

 

[Akriti]

Merkel Goes For Third Term, Euro in Range Due to No Surprises

Following German elections outcome, the Euro did not move much against the US dollar and still remains in 1.3565/1.3506 tight range since the previous week. The currency pair rose just slightly from 1.3520 to 1.3539. Merkel’s Christian Democratic Union (CDU/CSU) won 42% of the votes, winning the majority as expected. Social Democrats (SPD) are second in popularity with 26% of votes while CDU/CSU partners in the previous government Free Democrats secured just 4.7% down from 14.7% four years ago and did not make it into parliament. Now Merkel would need to form a new coalition, analysts expect that the most probable scenario is that the SPD would agree coalition with the CDU/CSU. Should the latter is achieved would rule out any uncertainty and support the common currency.

Less importantly but usually with major impact on financial markets, the Chinese Manufacturing PMI for September stood 51.2, higher than estimated and up from previous month. That supports risk appetite and suggests that China is picking up. As a virtue of that, we saw the Aussie bouncing up from support at 0.9382 to 0.9436 as the Australian raw material exports would be benefited by improving Chinese manufacturing, since China is the biggest Aussie trade partner.

At the same time, asset tapering is still on the table and speculation for the next Fed meeting would start soon again. The US dollar index remains in 80.52/80.26 tight range for the time being ahead of Manufacturing PMI data. The US dollar against the Japanese Yen slipped lower to support at 98.91 and we would expect the USDJPY to move as low as 50.0% of 97.76 to 99.65, at 98.63. Lastly, the sterling versus the greenback seem like it finished its corrective move after worse than expected UK Retail Sales pushed the pair to support at 1.5988 and is now hovering again above 1.60.

To close, market participants are focusing today on European Manufacturing PMIs and in the evening on the US PMI indicators, all are estimated to improve.

 

[Akriti]

Modest Changes in Currency Markets, Uncertainty over Fed Tapering in October

Currency markets remain mostly steady from yesterday trading with the US dollar still in 80.52/80.26 tight range following FOMC member Dudley speech. Dudley said that two tests need to be passed for the asset purchases tapering to begin, firstly evidence that labor market has shown improvement and secondly “forward momentum” creating confidence that labor market improvement would continue after tapering.

The FOMC member added that even though unemployment rate dropped from 8.1% to 7.3% in the last year that is overstating actually labor improvement, since other indicators are not so optimistic. Concerning “forward momentum” the test is not yet passed because Dudley is not yet confident about growth sustainability due to fiscal uncertainties. Lastly, the independence between asset purchases tapering and interest rates lifting was emphasized once more.

Thus, uncertainty increased in financial markets whether the Fed is going to slow down its bond purchases pace in October, since another FOMC member, Bullard, said on Friday that decision not to start unwinding was a close call. Thus greenback remained steady and the Japanese Yen got weak with the USDJPY bouncing above 99.00. Technically, found support around 50.0% of 97.76 to 99.66, at 98.64 suggesting that corrective move is finished and upside is resuming shifting focus to next resistance at 99.38.

Elsewhere, the Aussie eased against the US dollar after drawing resistance line at 0.9456 with the Australian dollar upside bias losing momentum since there are not any supportive events, thus the pair is dependent on US dollars’ performance. Concerning US data, investors are focusing on Consumer Confidence later today and S&P Case-Schiller HPI. The Euro versus the US dollar did not change much with mixed PMIs yesterday not providing significant support, the pair is currently at 1.3510. Technicals are bullish for the EURUSD since it is fluctuating in a potentially “flag” pattern suggesting that uptrend would continue.

 

[Akriti]

US Dollar Index Steady Below 80.59, Wary on US Monetary Path and Debt Ceiling

FX currency pairs are mainly moving on news events and central banks releases with the rest of the time doing sideways. Like yesterday when the US dollar rose slightly to resistance at 80.59 on positive Housing sector data and then continuing its range trading below that resistance.

Market participants are uncertain whether the Fed would taper its monthly asset purchases in October meeting after mixed messages from FOMC members, which lead investors to seek safer currencies like the Japanese Yen. In addition, concerns are increasing regarding US debt ceiling as the US policymakers would need to approve a higher debt limit than the current of $16.7B by mid-October. US economy runs the risk of credit-rating downgrade as the Congress delays decision on raising borrowing limit. US equities reflected that risk by closing lower with S&P 500 falling by 0.26% and Dow Jones Industrial Average losing by 0.43%.

Furthermore, NIKKEI 225 was also under selling pressure due to investors being wary over US Government funding and direction of Fed monetary path. The Japanese major index dipped by 0.76% adding selling pressure on the USDJPY that is heading back towards 61.8% of 97.76 to 99.66, at 98.48.

Therefore we have a situation where risk appetite is mildly squeezed, the US dollar in range, USDJPY potentially could go lower, AUDUSD falling and has just breached support at 0.9366. Thus we would consider the AUDJPY could weaken further should the USDJPY also breach its key support at 98.48. At the time being the cross currency pair is down trending suggesting in technical terms is bearish.

Elsewhere, the common currency remains under pressure against the greenback, gradually falling to 1.3464 and remaining in descending flag formation, which technically means that it remains in a bullish pattern.

Looking ahead, market participants are focusing on US Durable Goods orders and US New Home Sales, both are expected to improve compared to previous reading.

 

[Akriti]

US Dollar Slightly Higher Ahead of Second Quarter Growth Data

The greenback is gaining ground against its major peers on Thursday morning as previously Moody’s said that US economy credit rating would not be affected during talks of increasing Debt ceiling and they expect that eventually lawmakers would approve enhancement of borrowing limit. Thus, fears over another debt ceiling crisis are fading with the US dollar index trading higher early on Thursday, advancing by 0.18%, rising from 80.25 to 80.40. We are slightly cautious today due to risk of second quarter final growth data in the evening projected to be at 2.7% mildly higher than previous reading at 2.5%.

In Asian trading on Thursday the Euro versus the greenback eased from resistance at 1.3536 to support at 1.3510, perhaps as investors were collecting profits from yesterday upside following upbeat German Consumer Confidence indicator. In addition, the EURUSD was fading due to greenback getting stronger, although in technical terms the pair in the medium term remains bullish and could revisit 7-month highs at 1.3568.

The British pound surged by 0.75% to 1.6087 against the US dollar this morning and maintained its ground as the US dollar was strengthening indicating that British pound remains strong, supported by stronger than projected CBI realized Sales yesterday. Investors are monitoring later today UK second quarter final growth data expected to confirm previous reading at 0.7%.

Global equities were under selling pressure due to risk-off triggered by US budget talks and expectations that Fed would taper assets by end of October with S&P 500 falling for a fifth consecutive day to 1692.77 and Dow Jones Industrial Average losing 0.40%. Asian stocks followed with Hang Seng declining by 0.15% and Shanghai losing by 1.91%, however NIKKEI 225 gained by 1.22%, backed by renewed talks that the Japanese government may cut corporate tax. Therefore, as demand was increasing for Japanese equities the Yen as a safer currency was losing ground with the USDJPY bouncing up from 98.26 to 99.08.

The Aussie on the other hand corrected against the US dollar yesterday to as low as 0.9341 and early today resumed its upside reaching 0.9940. The AUDJPY cross was largely benefited by bullish AUDUSD and USDJPY in recent trading, climbing from 92.03 to 93.01, providing a 1.08% upside. We would expect the pair to consolidate somewhat below 93.01 before it resumes its upside with possible target around 93.47.

 

[Akriti]

Risk Aversion Due to Italy’s Political Turmoil, U.S Probable Shutdown, CNY Disappointing PMI

Monday opening was not boring for sure as many global events have moved the FX market. To begin with, Italy went into a political turmoil during the weekend as five ministers members of the former Prime Minister Silvio Berlusconi party resigned from Enrico Letta’s current government. Letta decided to seek for confidence vote on October 2 from the parliament to remain in power.

The third biggest economy of the Euro-zone enters into political crisis and may need to go for elections again in less than a year time. Political uncertainty increases risk of sovereign debt management in Italy with Italian 10-Year yield climbing from 4.53% on Friday to 4.73% today. The EURUSD became heavier just below resistance at 1.3569 and retreated early today at 1.3479, overall remains in 1.3569/1.3464 range and likely to continue like that as both Euro and greenback are slashed by negative developments.

We consider key drivers of the currency markets this week, the previously addressed Italian political crisis, probable U.S government shutdown and Non-Farm Payrolls on Friday preceded by ADP Employment Report on Wednesday, as well as major economies’ PMI indicators during the week. Therefore, this week is perceived a risky one and volatile week to be, so we are going to trade with caution.

First of all US Government is likely not to have money to pay federal workers from tomorrow, although interest payments are prioritized to receive payments and avoid default, because the lawmakers did not agree to raise borrowing limit. In any case, we expect to see a last minute development in the Congress and eventually avoid shutdown. In addition to that earlier today Chinese HSBC Manufacturing PMI stood at 50.2 down from expected and previous figure at 51.2, disappointing market participants and further increasing risk aversion.

The USDJPY slipped lower since the Japanese Yen is considered safe haven, thus attracting investors’ attention. The pair dropped to support at 97.69, breaching rising trend line of the symmetrical triangle against projections of an up rise break through, thus weakness may prevail in the following trading.

To close, risk aversion was also reflected on the Aussie vs US dollar currency pair, falling earlier today to a two week low at 0.9284, maintaining its recently established downtrend that started after peaking at 0.9521. Moreover, the safer swissy was gaining ground as investors were seeking for safer currenies, thus the USDCHF began on monday open in negative trading, easing from 0.9067 to 0.9045 .

 

[Akriti]

U.S Government Closes, 2014 Fiscal Budget Fails, USDIDX Drops to Fresh 7-month Low

U.S. government goes into shutdown mode because Republicans and Democrats failed to agree on spending bill for 2014. Thousands of workers would remain home and many government services would not operate and should that continued would hurt business and consumer confidence. Moreover, could have a multiplied effect on GDP with economists projecting that a 21-day close down like the previous one, 17-year ago, could reduce the growth by 0.9-1.4%.

Almost two weeks ago the Fed decided to hold its asset purchases to support weak recovery until further evidence of a sustainable growth appear and now the lawmakers seem like they live in a different country, failing to agree to fund government operations. The US dollar index as of writing dipped below key support at 80.00, confirming its downtrend and moving to fresh 7-month lows, with next stop likely at 79.66.

Elsewhere, the RBA decided to maintain its record low key rate at 2.50% as expected, saying that a below trend growth persists as the economy adjusts to weaker mining sector, unemployment rate increased and Australian currency is still high. AUDUSD pair jumped during the Asian session from support at 0.9284 to running level now at 0.9419, underpinned by stronger Aussie Retail Sales and further lifted by greenback’s weakness.

In Japan, NIKKEI 225 was rising in contrary to other global equity indices as Prime Minister Shinzo Abe said that Sales Tax would increase as planned from 5% to 8%, driving the USDJPY pair higher to cap at 98.71. The latter, was interpreted by market participants as a forward move to counter fight surging debt. However, risk averse due to U.S. failing to approve a budget for 2014 fiscal year and lower than projected Chinese Manufacturing PMI induced USDJPY pair to give back more than half of its previous gains, heading back towards 97.49 and was lastly seen at 97.98.

Eyes today would be on U.S budget talks, while decision deadline to take further measures to avoid hitting Debt Ceiling looming on Oct.17. Back to today’s news European PMIs fill the European session followed by US ISM Manufacturing PMI just before US open.

 

[Akriti]

US Dollar Index Defies U.S. Government Closure, Eyes on ECB Conference

Despite the U.S. government shut down the Wall Street closed in green yesterday looking for a quick break through of the budget gridlock. The S&P 500 rose by 0.80% to 1,695, Dow Jones Industrial Average Index gained 0.41% to 15,191.70 and NASDAQ climbed by 1.23%. The US dollar index recovered against previous expectations that uncertainty would weigh on the greenback. The US dollar index bounced up from yesterday support at 79.84 to as high as 80.25.

Moreover, market participants are betting that U.S government closure would be short and soon Republican and Democrats would find a solution. However, should we see further enhancement of gap that separates them, uncertainty would definitely weigh over risk appetite and stocks would start the downside. Ahead lies one more high risk event, on October 17 measures applied earlier to avoid hitting U.S. borrowing limit would be outdated and current dispute between lawmakers could impact their decision also on Debt Ceiling, driving U.S government to default.

The Euro against the greenback softened from 8-month peak at 1.3587 to support at 1.3506 ahead of ECB rate decision today. Mario Draghi is expected to hold key rate unchanged at record low at 0.50% while he said the previous week that another round of long-term refinancing operation (LTRO) is still a choice.

Thus, investors are closely monitoring ECB press conference today for further clues, generally though is not anticipated another round of LTRO to be announced today but more likely until the end of the year or ECB is using it as a threat to hold market interest rates under control. In any way Mario Draghi could be more dovish today in an attempt to ease the common currency further and support its economy. To close, another risk for Euro-zone financial stability is that Italian Prime Minister faces today confidence vote by the parliament after Berlusconi’s party withdrew from government coalition, however many RPs of Berlusconi’s party said that would vote for Prime minister Enrico Letta to keep its government afloat.

Elsewhere, the USDJPY is sliding on a slippery slope reaching new monthly low at 97.35 since the Japanese Yen is appreciated as a safe haven currency. The AUDUSD was under selling pressure falling by -0.62% from 0.9406 to 0.9348, on Wednesday morning amid sluggish Australian Building Approvals and widening Trade Deficit.

 

[Akriti]

US Fiscal Budget Deadlock Goes On, Debt Ceiling Looms, Euro Surges VS Greenback

The US dollar was smashed across the board losing the most against the Euro and the Japanese Yen as budget impasse extends to next week. Yesterday meeting between Barack Obama and congressional leaders didn’t changed anything with both sides repeating themselves. Republicans want to use 2014 budget and debt ceiling to increase pressure on Obama to delay it health-care program. Every week the U.S. government is shut down, 0.1% is trimmed from economic growth and failure to expand the $16.7B debt ceiling by Oct. 17 would have greater and global implications.

Moreover, yesterday the ADP Report said that in September employment excluding farming and public sector increased by 166K, less than projected rise of 177K adding pressure on the greenback. The US dollar index retreated below key support at 80.00 increasing technical downside bias and is likely to continue towards next support at 78.95.

The common currency versus the greenback bounced up to 1.3622 leaving behind its 1.3568/1.3464 range zone after political crisis in Italy resolved. Berlusconi changed his mind because he saw his fellow RPs abandoning him. Eventually the five-month coalition government gained confidence vote and remains in power. At the same time, ECB held key rate at record low at 0.50% and President Mario Draghi said that accommodative policy would remain in place for an extended period and inclined that ECB was ready to use LTRO. The EURUSD remains bullish and in an uptrend with fundamentals supporting it until now, thus in our view we could see even higher prices.

Elsewhere, the GBPUSD remained mostly unchanged fluctuating around 1.6218, with Halifax HPI, released as of typing, displaying that increased by 0.3% in September like in August but disappointing expectations of 0.6%. Lastly, the Crude Oil eased to 101.26 yesterday as Oil Inventories increased unexpectedly to 5.5M barrels for the previous week up compared to 2.6M barrels two weeks ago and higher than expectations of 2.4M.

On the data front, Euro-zone Services PMIs are eyed while later on today concerning Jobless Claims we are not sure will be released, as well as tomorrow’s NFP are uncertain due to U.S statistical services closure.

 

[Akriti]

BOJ Holds Monetary Stance, NFP Could Be Delayed, GBPUSD Waving Down

U.S government shut down continues for a fourth day spreading fears that Democrats and Republicans would be unable to agree on looming Debt Ceiling as well. No agreement on 2014 fiscal budget is reducing growth by 0.2% per week according to Goldman Sachs while there is an additional pressure by declining reduction as federal workers are not paid. Indirectly though economy could be further hurt by falling confidence in business and consumption.

The first signal of a damaged confidence came out yesterday by falling ISM Non-Manufacturing PMI to 54.4 in September, down from 58.6 in August and lower than expected at 57.2 and that increased pressure on the greenback which was losing against its most major currency pairs. The US dollar index is steady at recent low levels near 79.60. At the same time, US Jobless Claims came out at 308K for the previous week slightly higher than two weeks ago at 307K but less than expected at 315K although did not help much the greenback. The U.S Labor Department said the previous Friday that it would not issue NFP if the government is down and that seems the most likely scenario for today's expected news.

The Bank of Japan Earlier today at its monetary statement announced that is holding its monetary policy unchanged by targeting increase of its monetary base by 60-70 trillion yen per year. Additionally the central back reiterated that is aiming at a 2% price stability target. Earlier in the week Prime Minister Shinzo Abe increased retails sales tax from 5% to 8% to fight back rising debt levels. The Yen continue to incline against the greenback with the USDJPY plummeting to 96.92 mainly due to uncertainty over U.S. shut down and debt ceiling.

Lastly, the British pound against the US dollar started a downside development which was triggered by mildly weaker than projected Halifax HPI and Services PMI released yesterday. However, the macro data do not appear so bad for the UK economy to explain that sudden reversal in sentiment while the US dollar is weaker across the board.

The GBPUSD therefore is likely to have entered in longer term corrective move, in the hourly timeframe formed a double top between 1.6251/1.6161 short term range which was downwardly breached last night, the pair was lastly seen at 1.6128. We would expect a deep corrective move since the pair has been in bullish structure sine beginnings of July. The EURGBP bias swung to upside as the sterling was losing momentum while Euro was gaining momentum with the cross pair advancing by 1.27% from 0.8334 to 0.8439.

 

[Akriti]

U.S Debt Ceiling Talks Eyed, Risk Appetite Squeezed as U.S Fiscal Gridlock Continues

The new week starts with U.S. Government remaining closed for one week now with talks between Democrats and Republicans intensifying during the weekend. Republican House Speaker John Boehner is accusing the government for not discussing while at the same time he sets preconditions over raising debt ceiling. U.S. shut down continuation impasse is now really spreading fear among market participants who see that the same gridlock could extend to debt ceiling issue with more serious effects over financial markets.

John Boehner said during the weekend that there are not enough votes in the U.S. House of Representative to approve raising borrowing limit resolution without President Barack Obama giving something in return from health care law. Investors are now seriously considering the possibility of US government defaulting on its debt payments. U.S. Treasury Secretary Jack Lew said that would exhaust all extraordinary measures to keep debt below $16.7B but on October 17 United States will run out of the ability to borrow with only $30B in hand to meet obligations that can run to $60B per day.

Asian stocks dropped due to risk-off on fiscal impasse in U.S and concerns for a potential default of the largest economy in the world. NIKKEI 225 declined by 1.22% to 13,853.32 , Hang Seng lost by 0.75% and S&P/ASX 200 slipped by 0.90%. The USDJPY is retreating as traders seek for safe place to put their money and thus increasing demand for the Japanese Yen, the pair opened with a negative trading gap at 97.29 and dipped below support at 96.92 to a new monthly low at 96.88.

Risk appetite was further squeezed as the World Bank cut growth forecasts for China from 8.3% the forecasted in April to 7.5% for this year, for the 2014 China is expected to grew by 7.7% down from previous estimation of 8.0%.The World Bank also reduce its growth estimation for other East Asian developing economies as well.

As a consequence USDCHF fell this morning from 0.9065 to 0.9027 amid demand for Swissy increases as investors risk appetite worsens. At the same time the AUDUSD formed a reversal pattern the previous week with negative developments during the weekend triggering downside to breach support at 0.9421 and to drop as low as 0.9390, the pair is likely to continue its bearish development as U.S. fiscal and debt ceiling impasse continues.

 

[Akriti]

U.S Shut Down and Debt Ceiling Still Dominate Financial Markets

Like the previous days U.S government remains closed down and there has been no progress regarding debt ceiling so the situation is the same, although as we approach October 17 and nothing changes risk appetite is further squeezed. Last night S&P 500 dropped by 0.85% and Dow Jones Industrial Average declined by 0.90% reflecting sentiment worsening.

Still, Asian equities recovered today after yesterday’s losing trading with NIKKEI 225 advancing by 0.30% and Hang Seng gaining by 0.93%, despite disappointing Japanese Current Account and weaker Chinese HSBC Services PMI. Japan’s current account surplus stood at ¥161.5B for August while was estimated to be at ¥520.0B and was down from ¥577.3B the previous month. The Japanese Yen weakened against the US dollar and that backed the USDJPY to surge from 96.56 to 97.15. In addition to that prices bounced up amid short covering following recent sliding to fresh lows.

The US dollar index yesterday was under heavy pressure and eventually drew support line at 79.86 as budget deadlock is entering new phase after House Speaker John Boehner said that it has “no clear votes for raising debt ceiling”. That is transmitting political impasse to U.S debt ceiling issue creating possibilities that U.S could default on its obligations. Market has not priced a U.S default as most of the economists are expecting that would be resolved by end of this week, also traders would grab on any development toward resolution. Obama said yesterday that he would accept a short-term raise in borrowing limit to avoid default and perhaps that’s why the US dollar recovered back many of its Monday losses rising back to 80.00.

To close, we saw the GBPUSD climbing to resistance at 1.61 yesterday and earlier today retraced mildly at 1.6074 looking ahead for the MPC rate statement on Thursday, where no monetary changes are expected by Bank of England. The EURUSD is still fluctuating between 1.3591/1.3560 sideways zone with news coming from US being the main driver.

 

[Akriti]

Yellen Next Fed Chairman Raises Risk Capped by U.S Political Impasse and IMF Outlook Cut

As the political standoff that drove U.S government to closure and is now threatening the world with a U.S default continues, the Japanese Yen was weakening on Barack Obama’s decision to nominate Janet Yellen to succeed Ben Bernanke at Fed’s head next year. Janet Yellen is considered quite dovish and that interpreted by market that Fed is likely to remain accommodative for a longer period, boosting demand for riskier assets and thus setting pressure on the Yen.

Nonetheless, Barack Obama repeated that would talk with House speaker John Boehner after the shutdown ends and the risk of default is eliminated, though Republicans insist on spending cuts and modifications on Obamacare law. Therefore, Yellen effect on US dollar demand is capped by political impasse, even though we still expect a last minute resolution. In addition, yesterday the IMF cut growth outlook for emerging markets by 0.5% for 2013, while advanced economies outlook was mostly unchanged. Global economy growth outlook therefore downgraded to 2.9% for 2013 compared to 3.2% in July report, weakening further market sentiment.

Now concerning currency moves, the greenback against its major peers was on the upside advancing from support at 79.83 to as high as 80.18, recovering to a new high of the week. The US dollar increased its value mostly against safer currencies like the Japanese Yen and the Swissy. The USDJPY climbed on Wednesday morning from 96.82 to 97.46 or by 0.66% and the USDCHF surged from 0.9015 to 0.9077, percentagewise both currency pairs had the same increase.

As of typing though, the European markets opened in red color falling by around 0.25% weighing on the common currency, the sterling and the swiss franc, ahead of British Trade Balance and German Industrial Production releases today as well as BOE MPC Statement tomorrow. The EURUSD started its downside earlier today from 1.3603 and reached as low as 1.3523, technically is bearish, heading towards 1.3506. The GBPUSD also declined from 1.6122 to 1.6030 creating a double top in the hourly and giving back all of its yesterday gains. The USDCHF rose above 0.9077 and is now outperforming the USDJPY that remained below 97.46