Daily Market Analysis by Vinson Financials

[VinsonFinancialsFX]

Financial News September 1, 2015


USD-CNY to be range-traded in near term
Things do not look much better in the Euro zone. Long term inflation expectations react in a clearly visible manner to the developments of the oil price. It would be desirable to reach a situation where long term inflation expectations were independent of short term effects, as a sign of confidence into the ECB's ability to manage inflation.

While that is clearly not the case, the rising oil price is causing inflation expectations to rise again. Anyone accepting that inflation expectations play a significant role in the economic process of inflation generation will have to come to the conclusion that the inflation outlook in the euro zone remains depressed, at least as long as a continuous rise in commodity prices (unlikely) or a continuous euro depreciation create a constant flow of inflation momentum.

"At some stage sooner or later the ECB would then have to react. Later is more likely than sooner. It will have to become sufficiently clear that the medium term inflation target is being missed before the European central bankers change their QE programme (i.e. extend or expand it). That will then cause euro weakness through a different channel. Whichever way it will happen, in the end the different alternatives will all lead to a weaker euro", says Commerzbank.

This outlook would only come under threat if the rest of the world was in a similar situation, as all currencies obviously cannot depreciate at the same time. However, the Fed's relaxed approach signals, Nobody is going to take action against the appreciation of the US dollar, at least this currency will be able to shoulder the burden of appreciation.

No surprises from RBA

The RBA is not expected to change its key rate today, and it didn't. It is not a non-event. What was decisive was how prominent a position RBA governor Glenn Stevens would give to the developments in China in his statement.

Of course they were mentioned, but the major part of the statement was unchanged. It would therefore seem that the Australian central bankers see no need for a radical revaluation of the situation.

"So compared with the concerns of some market participants who feared the need for further monetary policy easing at least medium term, this was news that will support AUD at current levels", says Commerzbank.

Market Review September 1, 2015


The Reserve Bank of Australia left official interest rates unchanged at 2.00%, as widely expected, and for a fourth meeting after a month of turmoil on financial markets and amid rising concern about China's economy. The central bank maintained a neutral bias and noted that "further information on economic and financial conditions" are needed to determine the assessment of outlook and monetary policy.

Moreover, RBA governor Glenn Stevens noted China's economy continued to weaken, with commodity prices falling, partly because of increased supply from Australian producers. In addition, Mr Stevens repeated that he expected the Federal Reserve to begin hiking interest rates this year, without specifying the timing. AUD/USD remained in tight range and near the 0.7100 area. Released from Australia during the Asian session, Building Approvals rose 4.2% versus the estimated 2.9% and current account deficit widened sharply to AUD -19.0B versus the estimated AUD -15.9B.

Released during the Asian session this morning, New Zealand Overseas Trade Index rose 1.3% beating the estimated -1.9%, Japan Capital Spending rose 5.6% missing the estimated 9.0% and Final Manufacturing PMI came in at 51.7 versus the estimated 51.9.

Released during the early European session, Spanish Manufacturing PMI came in at 53.2 missing the estimated 53.9 and causing insignificant impact on the EUR/USD, which is currently trading higher than yesterday, near the 1.1270 area.

The main events for the day will be the German Unemployment Change, the United Kingdom Manufacturing PMI and Net Lending to Individuals, Eurostat Unemployment Rate, the Canadian GDP, and the United States ISM Manufacturing PMI and Final Manufacturing PMI.

Additional economic releases will be New Zealand GDT Price Index.

Data releases to monitor:

USD: Total Vehicle Sales, ISM Manufacturing Prices, IBD/TIPP Economic Optimism, Construction Spending, ISM Manufacturing PMI, Final Manufacturing PMI.

CAD: GDP.

EUR: Italian Manufacturing PMI, French Final Manufacturing PMI, German Unemployment Change, German Final Manufacturing PMI, Final Manufacturing PMI, Italian Monthly Unemployment Rate, Italian Quarterly Unemployment Rate, Unemployment Rate.

GBP: Manufacturing PMI, Net Lending to Individuals, M4 Money Supply, Mortgage Approvals.

NZD: GDT Price Index.

Trade Idea of the Day

USD/JPY

Currently the pair is trading at 120.43. Traders must monitor the 122.36 resistance level and the support level of 116.17 for possible breakouts. A possible scenario would be a movement towards the 120.00 support level where a break may lead to the 119.30 area. An alternative scenario could be a movement towards the 121.05 resistance level where a break could lead to the 121.65 area.

 

[VinsonFinancialsFX]

Financial News September 3, 2015


Downward revision to EU inflation outlook likely
On the inflation front, energy and food prices are now materially lower while the tradeweighted euro has strengthened. The ECB assumes unchanged exchange rate and oil prices in line with market futures reduce the inflation outlook this year to 0% and to 0.8% next, from 0.2% and 1.2% respectively, notes Barclays.

The ECB will release its updated quarterly macroeconomic forecasts, including inflation. The central bank projected the inflation rate at 0.3% in 2015, 1.5% in 2016 and 1.8% for 2017 in June.

"We think 2015 and 2016 projections will be revised down to take stock of changes in oil prices and the exchange rate since the last round of forecasts in June: since then, the euro has appreciated by around 6% and the price of Brent crude oil in USD is down around 30%", argues Barclays.

Euro at daily highs amid mixed Euro zone PMI data

Final European PMI readings came out mostly better-than-expected, but investors rather ignored the numbers.

The French services PMI for August came out at 50.6 and sharply worsened from July's 52.0, while the same gauge for Germany improved from 53.8 to 54.9, Markit advised on Thursday.

Moreover, Italy, Spain and euro zone in total delivered better-than-expected results for the reported period.
Later in the day, the European Central Bank (ECB) monetary policy decision is due, with the central bank expected to leave all three key benchmark rates unchanged. However, the presser will attract some attention as bank President Mario Draghi is likely to comment on the previous volatility and the current exchange rate of a stronger euro against most of the majors.

From the US dollar point of view, the ISM non-manufacturing gauge for August is due and should soften from July's 60.3 to 58.2. The numbers should not bring any volatility as traders are already pricing out the September rate hike, while the biggest focus remains on Friday's payrolls report.

Deterioration in Euro area monetary and financial conditions

Euro area financial market conditions have tightened since the last meeting of ECB. The euro reached an inflection point by mid July and since then it has appreciated on a REER basis by more than 6% (the NEER by over 7%).

Elevated volatility in energy and commodities, equities, and concerns about Chinese and EM growth prospects have worsened. As shown on above Figure, the in house Financial Conditions Index of Barclays has tightened quite significantly over the summer.
"However, we consider that the tightening in financial conditions experienced over the past three weeks could jeopardise these favourable trends, and are likely to be picked up by the ECB in their discussion. The main conclusions of QE Monitor updated in 27th August are similar to those we presented in July: monetary policy is gradually working its way through the economy, with ECB balance-sheet and market-based indicators mostly in the "green", but macroeconomic indicators are still lagging as the transmission to the real economy takes time", says Barclays in a report to its client.

Market Review September 3, 2015


The economic data from Australia was once again the main focus during the Asian session. More specifically, Australia's trade performance has improved marginally but still recorded its 16th consecutive monthly balance of payments deficit. The deficit in July narrowed to $2.46 billion, 19 per cent lower than the recently revised $3.05 billion in June. Moreover, the deficit beat market expectations, which had forecast a figure closer to $3.1 billion. Released also from Australia, Retail Sales declined by 0.1%, missing the median market forecast for an increase of 0.4%. AUD/USD is struggling to remain above the 0.7000 level and currently is trading near the 0.7020 area after dropping to the 0.6991 area during the Asian session.

With Chinese markets closed, the focus will be on the ECB policy decision and press conference, followed by the United States Unemployment Claims, Trade Balance and ISM Non-Manufacturing PMI.

The European Central Bank will hold its regular meeting and news conference today, and while no major policy changes are expected to be announced by ECB President Mario Draghi, he is likely to stress that further support in the future is possible and would probably prefer to note the positives rather than the negatives. Furthermore, ECB’s President Speech is expected to be dovish, which would support sentiment that so far has been a drag on risky assets.

Six months after the central bank began an unprecedented stimulus program, Eurozone growth has improved, Unemployment is edging lower, Inflation is back above zero, if just barely. There are signs that credit is flowing more easily and the crisis in Greece has faded, for now at least.

Since ECB’s last gathering in July, financial conditions have tightened, meaning liquidity in financial markets has dried up and the currency bloc's inflation outlook has worsened, following renewed strength in the euro and the continued weakness seen in oil prices. As a result, the ECB is likely to cut its inflation forecast for the year after its governing council meeting this week. Capital Economics expects the ECB to lower its inflation forecast by about 0.3 percent to about 0.0 percent this year, while the forecasts for 2016 and 2017 should be little changed at about 1.5 percent and 1.8 percent respectively.

Data releases to monitor:

USD: Challenger Job Cuts, Trade Balance, Unemployment Claims, Final Services PMI, ISM Non-Manufacturing PMI, Natural Gas Storage.

EUR: Spanish Services PMI, Italian Services PMI, French Final Services PMI, German Final Services PMI, Final Services PMI, Retail Sales, Spanish 10-y Bond Auction, French 10-y Bond Auction, Minimum Bid Rate, ECB Press Conference.

GBP: Services PMI.


Trade Idea of the Day

GBP/AUD

Currently the pair is trading at 2.1775. Traders must monitor the 2.2119 resistance level and the support level of 1.1395 for possible breakouts. A possible scenario would be a movement towards the 2.1842 resistance level where a break may lead to the 2.1940 area. An alternative scenario could be a movement towards the 2.1672 support level where a break could lead to the 2.1590 area.

 

[VinsonFinancialsFX]

Financial News September 4, 2015


CAD outperforms relative to NOK, AUD, NZD

Stronger than forecast retail sales and CPI inflation last month cushioned the fall of the CAD relative to other commodity currencies like the NOK, AUD and NZD. USD/CAD traded a high of 1.3354 and EUR/CAD vaulted 1.55.

"By end 2015, forecast for USD/CAD is 1.30", says Societe Generale.

CPI inflation accelerated from 1.0% yoy to 1.3% (core rose from 2.3% yoy to 2.4%). On a more sobering note, Q2 GDP contracted by 0.5% qoq annualised, marking a second quarterly contraction and a return to recession for the first time since Q1 09.

The Bank of Canada last cut interest rates by 25bp in July and may be inclined to pause this month. Further easing is not ruled out if oil prices keep falling and capex is scaled back.

ECB's QE extension likely in December

The ECB is likely to be under increased pressure to act in view of the notable downward revision of the inflation outlook as the central bank expects the inflation rate fall to 1.5% in 2016.

Moreover, the bank is unforeseeable concerned about China in particular and Ems in general. ECB's QE program is flexiable to adjust the macroeconomics imbalance in the economy; Commerzbank expects the QE volume be extended as early as December.
The extension of QE program turn out to be only moderate the increased flexibility in itself constitutes a EUR negative signal. It means that the ECB can react in a discretionary manner to inflation dampening events - e.g. a possible EUR appreciation.

"Therefore, if the market finds the ECB's flexibility claim to be credible, then EUR strength will not be possible. So all in all the collapse in EUR-USD of more than one cent that we saw yesterday in reaction to the ECB was more than justified. In the near future everything will depend on how the factors the ECB considers decisive will develop", says Commerzbank.


Market Review September 4, 2015


he European Central Bank president Mario Draghi delivered a clear signal that the ECB is ready to support its landmark asset-purchasing programme and promised additional quantitative easing, from the ECB, which has already pledged to buy EUR 1.1TN of mostly government bonds, buoyed equities and bonds across the region. While President Draghi was ambiguous on the detail, he left no doubt of just how seriously policymakers in Frankfurt were taking the signs of a slowdown in emerging markets. Their major concerns are regarding China, where the downturn threatens to slowdown the Eurozone’s recovery through trade links and the effect on confidence in financial markets around the world. Furthermore, ECB held interest rates at 0.05%, while downgraded its GDP and inflation forecasts over the next two years. The ECB also kept its marginal lending rate at 0.30% and left its facility rate unchanged at 0.20%.

Moreover, Mario Draghi lowered the central bank's inflation projections for the remainder of 2015 to 0.1% from the previous estimate of 0.3%. The ECB has also lowered inflation projections for 2016 and 2017 from 1.5% and 1.8% to 1.1% and 1.7% respectively. In addition, the ECB reduced GDP projections over the period predicting that it will remain below 2% through the end of 2017. EUR/USD tumbled by nearly 1% yesterday, and traded between a range of 1.1087 and 1.1243 before settling at 1.1140 area, where is currently trading.

Regarding the migrant crisis in Europe, president Draghi said that “the European Central Bank has no role to play” while he added that "Really any European should be horrified by the tragic loss of life happening on our doorstep."

Released during the Asian session this morning, Japan labour cash earnings rose 0.6% missing the estimated 2.1%. USD JPY hit fresh lows by reaching as low as the 119.10 level and currently is trading near the 119.22 area.

Released during the early European session, German Factory Orders declined -1.4% versus the estimated -0.5% while Swiss Consumer Price Index (CPI) declined -0.2% compared to the previous of -0.6%.

The main event for the day will be the United States employment report. Unemployment rate is expected to drop to 5.2% while Average hourly earnings are expected to grow 0.2% and Non-Farm Employment Change is estimated to remain near 215K.

Additional economic releases will be the Canadian Employment Change, Unemployment Rate, Labour Productivity and Ivey PMI.

Data releases to monitor:

USD: FOMC Member Lacker speech, Average Hourly Earnings, Non-Farm Employment Change, Unemployment Rate.

EUR: Retail PMI.

CAD: Employment Change, Unemployment Rate, Labour Productivity, Ivey PMI.

Trade Idea of the Day

EUR/AUD

Currently the pair is trading at 1.5975. Traders must monitor the 1.6150 resistance level and the support level of 1.5596 for possible breakouts. A possible scenario would be a movement towards the 1.6030 resistance level where a break may lead to the 1.6080 area. An alternative scenario could be a movement towards the 1.5872 support level where a break could lead to the 1.5815 area.

 

[VinsonFinancialsFX]

Financial News September 7, 2015


China's money growth to moderate

Chinas's new bank lending likely dropped to CNY1000bn, from CNY1,480bn in July. However, considering the CNY400bn LGBs issued under the debt-swap programme in August, the actual increase in bank loans was probably close to CNY1.4trn.

"China's money and credit data are likely to have normalised lower in August, after the surprisingly strong readings in July given stock-market rescue measures. M2growth is expected to have moderated to 12.6% yoy in August from the surprisingly strong rate of 13.3% yoy in July", says Societe Generale.

Part of it should have been continued support to financial institutions' stock market rescue action.

Germany's industrial output stronger in July

Industrial production in Germany returned to growth in July, official data showed on Monday. Industrial output in the euro area's powerhouse improved in July, according to the latest report from the German Federal Statistical Office released on Monday.

Industrial output in Germany posted 0.7% growth in the reported period, seasonally adjusted, after reporting a revised 0.9% negative growth in the preceding month, according to data. However, the number missed estimates of 0.9% growth.

Meanwhile, factory orders in Germany deteriorated in July when measured on a monthly and seasonally adjusted basis, official data revealed on Friday.

Industrial orders in the euro area's number one economy powerhouse dropped 1.4% in the reported period, measured on a monthly and seasonally adjusted basis, while analysts had expected the reading to post a 0.6% decrease. In the prior month, the revised gauge rose 1.8%.

Meanwhile, the German manufacturing sector saw a significant increase in its pace of growth in August with the respective PMI reading coming in above the previous month's results, final data confirmed last week.

The so-called Purchasing Managers' Index (PMI) for the German manufacturing sector booked 53.3 points during the eighth month of the year, following the 51.8 recorded in July, Markit Economics reported.

That's the highest data since April last year, when the gauge climbed to 54.1.

The euro managed to move above $1.11 following an earlier slide below, but the resistance level of $1.1150 remains untouched. Around the time of the European open the euro was moderately flat, down 0.18% at $1.1140.


Market Review September 7, 2015


The G20 meeting held in Ankara, Turkey over the weekend highlighted the failure of the major capitalist powers to initiate measures to halt the recessionary forces overtaking the world economy. Moreover, G20 Finance ministers insisted the global economy has nothing to fear from a China slowdown, as an effort to restore confidence of investors in the global markets.

European ministers showed firm support for Beijing, which convinced many G20 officials that its devaluation and new currency management arrangements constituted a step towards a more market-determined exchange rate rather than a strategy to boost exports. Furthermore, the United States support was more moderated, as the latest developments in China had direct and indirect impact on the United States growth. In addition, US Federal Reserve officials are trying to calculate possible China-linked risks ahead of their meeting on September 16-17. The central bank would not want to lift rates at a time of severe market volatility. Jack Lew, US Treasury secretary, pressed Lou Jiwei, his Chinese counterpart, for an indication that China would allow renminbi rate to fluctuate affected by market pressures.

Eventually financial leaders from the world’s 20 biggest economies have agreed to step up reform efforts to boost slow economic growth, saying reliance on ultra-low interest rates would not be enough to accelerate expansion. Governments will prepare their final investment strategies by November, when G20 leaders are to meet to discuss them in Antalya in Turkey.

Released during the Asian session this morning, Australia’s AIG Construction Index come in at 53.8 versus the previous of 47.1 while ANZ Job Advertisement rose 1.0% versus the previous decline of -0.5%. AUD/USD hit fresh six-year lows by reaching the 0.6907 level, which was last seen in April 2009.

Released during the early European session, Japanese Leading Indicators rose 104.9%, while German Industrial Production rose 0.7% missing the estimated 1.2%. USD/JPY and EUR/USD remained in tight range near the 119.30 and 1.1150 area respectively.

Released from Switzerland, new figures showed that the Swiss National Bank's foreign currency reserves continue to grow at a decent clip as Reserves stood at CHF 540.4bn in August, from CHF 531.2bn in July. USD/CHF is currently trading near the 0.9725 area with the next resistance seen at the 0.9797 level.

The economic calendar for the day is rather empty as the United States and Canada banks will remain closed in observance of Labour Day.

Data releases to monitor:

EUR: Sentix Investor Confidence.

Trade Idea of the Day

EUR/GBP

Currently the pair is trading at 0.7339. Traders must monitor the 0.7394 resistance level and the support level of 0.7254 for possible breakouts. A possible scenario would be a movement towards the 0.7363 resistance level where a break may lead to the 0.7390 area and test the resistance level of 0.7394. An alternative scenario could be a movement towards the 0.7303 support level where a break could lead to the 0.7275 area.

 

[VinsonFinancialsFX]

Financial News September 8, 2015


Chinas trade data remained soft in August

China's trade figures remained soft in August. The exports dropped by 5.5% yoy in August, compared with -8.3% in the prior month and market expectation of -6.6%. Imports surprised the market on the downside by a large margin, slashing 13.8% yoy, down from -8.1% in July.

Shipments to the US dropped by 1.0% in August while the exports into the EU fell by 7.5%. On a volume basis, China's imports of iron ore and copper fell by 0.2% and 8.1% YTD respectively, while imports of crude oil picked up by 9.8% in the first eight months of this year. As imports underperformed, China registered another huge monthly trade surplus at USD60.2bn in August, very close to the record high of USD60.6bn in February 2015.

Naturally, the focus is on the divergence between trade surplus and foreign reserves. China has accumulated USD746bn trade surplus since January 2014, while the foreign reserves dropped by USD264bn during the same period, notes Commerzbank. To some extent, this could suggest that large amount of money is leaking from the economy.

Beyond high short-term volatility, Australian labour market is quite firm

Australia's July labour market report surprised in just about every aspect, with large moves in all key measures. The August report is expected to reverse a substantial part of these changes, as sample rotation had a great deal to do with the erratic moves.

"Employment, which surged 38.5k (equivalent to an annualised rate of 4.0%), is likely to have declined by a 12k decrease, which would leave the Q4 figure on course for an annualised gain of 1.9%. August's employment level would be up 2.0% yoy, down from 2.1% in July", says Societe Generale.

Despite the decline in employment, unemployment is expected to have eased as well, as part of the 79k surge in the measured labour force reverses. Note that the underlying civil population 15-years and older is growing at just 16k per month at current rates of participation, so this was really an expansion of epic proportions.

The participation rate would thus reverse 0.25pp of the 0.32pp increase in July. This would allow the unemployment rate to decline from 6.3% (6.349% unrounded) to 6.2%, supporting the view that the trend in unemployment has indeed stabilised.

Market Review September 8, 2015


During the Asian session this morning, data from China showed worsening in foreign trade again in August. Both exports and imports contracted more than expected and raised much doubt on the health of the Chinese economy. Exports declined -6.1% while imports declined -14.3%. Overall trade contracted -9.7%. Trade surplus widened to USD 57.8b. In addition, China’s foreign exchange reserves dropped USD -93.9b in August to USD 3.56T. Moreover, Customs said in a statement that China’s exports would continue to face “relatively big pressure” in the fourth quarter.

The weak trade data mark the latest soft figures from the Chinese economy. Indicators of industrial production, financial services, factory, and real estate investment point to slowing growth in the second half of the year, raising questions about China’s ability to meet its annual growth target of about 7% and reducing investor confidence worldwide. Furthermore, last month devaluation of the Yuan aimed at helping its struggling exporters by reducing the price that buyers pay in foreign markets. The economic data from China will be closely monitored as PBoC may surprise global markets and investors with further stimulus, taking into consideration the latest data

Released from Japan during the session, Current Account came in at 1.32T beating the estimated 1.25T, Q2 GDP was finalized at -0.3% versus the estimated -0.4%, bank lending rose 2.% compared to the previous pf 2.6% and Final GDP Price Index rose 1.5% missing the estimated 1.6%. USD/JPY dropped to the 118.85 area during the Asian session, but didn’t remain low for long as it rose to the 119.85 area during the early European session.

Released during the early European session, Swiss Unemployment Rate rose 3.3%, as widely expected, causing insignificant impact on the Swiss Franc. German Trade Balance came in at 22.8B beating the estimated 21.8B while French Trade Balance came in at -3.3B versus the estimated -3.2B and General Budget Outcome came in at -79.8B compared to the Previous of -58.5B. EUR/USD is trading slightly higher today and above the 1.1200 level.

The main events for the day will be the Eurostat Revised GDP and the United States Consumer Credit.

Data releases to monitor:

USD: NFIB Small Business Index, Labour Market Conditions Index, Consumer Credit.

EUR: Revised GDP.

GBP: 30-y Bond Auction.

Trade Idea of the Day

EUR/JPY

Currently the pair is trading at 134.15. Traders must monitor the 135.80 resistance level and the support level of 132.20 for possible breakouts. A possible scenario would be a movement towards the 134.40 resistance level where a break may lead to the 134.90 area. An alternative scenario could be a movement below the support level of 133.90 with target the 133.20 area.

 

[VinsonFinancialsFX]

Financial News September 9, 2015


Is BOC waiting for the Fed?

The sharp rise in oil prices off their lows over the past 10 days, better-than-expected Q2 GDP print, a second trade balance beat driven by strong non-energy exports likely reduces the risks of a September cut, as noted above.

"Combined with belief the Fed will begin normalizing this year policy divergence will continue to support our long USD/CAD stance. The high correlation between Canadian and US rates suggests that a Fed hike could lead to an unwanted tightening of Canadian financial conditions", says Bank of America.

A relatively neutral statement tone as a result of these developments would likely elicit knee-jerk CAD strength with USD/CAD still trading close to its recent highs despite the rebound in oil prices.

But, this move is faded as oil prices are still below the BoC's forecast assumptions and outlook for a strong pickup in non-energy exports and business investment is still quite optimistic, supporting our October cut call.

"So even if the CAD weakens, the net effect will be more muted by the rise in Canadian rates, increasing the BoC's incentive to ease further. Bottom line, whether the Fed hikes in September or later, policy divergence still moves strongly in the dollar's favor as the BoC hikes again, supporting our higher USD/CAD conviction. We would fade any C$ strength on the back of a more neutral statement and no cut", added Bank of America.


CNB intervened by c.EUR 4.3bn during July-August

The Czech National Bank published FX reserve data for August and intervention data for July yesterday. The country's FX reserves were up by a sharp $5.4bn in August and the CB disclosed that it had intervened by around EUR 1bn in July.

CNB had disclosed earlier that it had intervened once in July, but it did not disclose the amount nor whether it had intervened again in August. The data indicates that CNB now has to intervene regularly.
"A part of the increase in USD reserves can be explained by the increase in the EUR-USD exchange rate in late August; adjusting for this, preliminary calculations still suggest that CNB had to intervene by a larger EUR 3.3bn-3.5bn in August and bring the EUR-CZK exchange rate towards the 27.00 official floor", argues Commerzbank.

EUR-CZK rose in trading yesterday to 27.05 levels, opposite the expected direction of movement - this was probably because CNB intervened pre-emptively to ward off unwanted speculation on the back of the data.

Market Review September 9, 2015


Prime Minister Shinzo Abe will remain Liberal Democratic Party leader for a second three-year term after being re-elected on Tuesday. Prime Minister Abe pledged to cut corporate tax from the current 35% next year to more effective corporate tax rate, which would be lower at least by 3.3%. He also pledged to "go beyond that if possible", by reducing the rate down into the twenties over several years, bringing it to a level that compares favourably in the international context. Mr. Abe also pledged to push forward with his plan to permit Japan’s military to be dispatched to conflicts abroad, which has been banned for 70 years under the pacifist Constitution. Legislation allowing that change is expected to be enacted next week, despite rare large-scale protests across the country. Released from Japan during the Asian session, M2 Money Stock rose 4.2% versus the estimated 4.1%, Consumer Confidence came in at 41.7 beating the estimated 40.6 and Prelim Machine Tool Orders declined -16.5% versus the previous rising of 1.7%. USD/JPY is currently trading near the 120.55 area after dropping to the 118.85 area yesterday.

Elsewhere, RBA deputy Governor Philip Lowe said that Australian people should not panic about the economic turmoil affecting Australia lately, as the Australian economy is in a period of transition that naturally comes with its own challenges. He added that Australia has the ‘flexibility’ to deal with those challenges, without going in to a recession. He also noted that "investment climate would be improved through a strong focus by both business and government on innovation, productivity, human capital and entrepreneurship." Deputy Governor Lowe commented that China's recent stock market crash "has led some to ponder the general direction of Chinese policy” and "this is an issue that will bear close watching over the months ahead." Released from Australia during the Asian session, Westpac Consumer Sentiment dropped -5.6% while Home Loans rose 0.3% missing the estimated 0.8%. AUD/USD is currently trading near the 0.7040 area with the next resistance seen at the 0.7087 level.

The main events for the day will be the BoC rate decision and statement, where BoC is expected to keep policy rate unchanged at 0.50%. Moreover, United Kingdom Manufacturing Production and Trading Balance will be also monitored

Additional economic releases will be the Canadian Building Permits and Housing Starts, the United Kingdom Industrial Production, NIESR GDP Estimate and the United States JOLTS Job Openings.

Data releases to monitor:

USD: JOLTS Job Opening, 10-y Bond Auction.

EUR: German 10-y Bond Auction.

AUD: RBA Assist Gov Debelle speech.

GBP: Manufacturing Production, Trade Balance, Industrial Production, NIESR GDP Estimate.

CAD: Housing Starts, Building Permits, BOC Rate Statement, Overnight Rate.


Trade Idea of the Day

USD/CAD

Currently the pair is trading at 1.3214. Traders must monitor the 1.3323 resistance level and the support level of 1.3117 for possible breakouts. A possible scenario would be a movement towards the 1.3245 resistance level where a break may lead to the 1.3280 area. An alternative scenario could be a rebound below the 1.3190 level, which would lead to a break of 1.3180 with next target the 1.3160 area.

 

[VinsonFinancialsFX]

Financial News September 10, 2015


BoE to focus on strengthening domestic economy

The U.K PMI continued its fall in August, inflation remains stubbornly close to zero percent, industrial production is limping and the trade deficit is expanding. In addition there are the external developments surrounding China and the Emerging Markets.

The resulting uncertainty and increased volatility on the markets will cause some MPC members to wait and see as well as considering the strength of the domestic economy as a kind of buffer against unfavourable external impacts.
"Moreover the BoE cannot completely ignore the Fed's and ECB's approach: the Fed is likely to wait until December before hiking its key rate and the ECB signalled that in the foreseeable future its monetary policy will become even more expansionary. If the BoE now seems like a central bank in favour of hiking interest rates soon it risks the appreciation of the pound which in return is going to put pressure on the inflation rate and make it more difficult to reach the inflation target", says Commerzbank.

So everything all told the BoE is likely to stick to its approach and underline the strength of the domestic economy while also sounding concerned about external developments. Therefore, Ian McCafferty, a MPC member of BoE, is unlikely to find any supporters for vote in favour of a rate hike.



Market Review September 10, 2015


The Reserve Bank of New Zealand cut its benchmark lending rate by 25bp from 3.00 percent to 2.75 percent. The reduction in the Official Cash Rate (OCR) was seen as necessary by the RBNZ in order to keep future average CPI inflation near the 2 percent target. This highly anticipated policy decision was the third consecutive adjustment since the central bank began easing this year. Moreover, the central bank maintained a dovish stance and signalled in its statement that "some further easing in the OCR seems likely." Furthermore, RBNZ said that the global outlook was "revised down" due to weaker activity in developing economies particularly in China and East Asia. The New Zealand Dollar declined more than 1.5 percent (over 95 pips) versus the US Dollar after the RBNZ decision.

Elsewhere, Australia’s labour market, yet again, has exceeded expectations in August. Over the month employment increased by 17,400, smashing the median market forecast for a gain of 5,200. Moreover, Full time jobs rose 11.5k while part-time jobs rose 5.9k. Unemployment rate dropped to 6.2% as expected while participation rate dropped from 65.1% to 65.0%. Despite the better-than-expected economic figures, AUD/USD was dragged down by the RBNZ rate cut decision, which pushed the pair down to the 0.6945 area. AUD/USD was somewhat recovered ad is currently trading near the 0.7028 area.

Released during the Asian session, Japan’s Core Machinery Orders declined -3.6% versus the estimated 3.4%, while PPI dropped -3.6% versus the estimated -3.2%. USD/JPY is currently trading near the 120.78 area.

Released from China during the Asian session, Consumer Price Index (CPI) rose 2.0% beating the estimated 1.9% while PPI declined -5.9% versus the estimated -5.6%.

Released during the early European session, French Final Non-Farm Payrolls rose 0.2% while French Industrial Production dropped -0.8% missing the estimated 0.3%. EUR/USD is currently trading near the 1.1200 area with the next resistance seen at the 1.1244 level.

The main events for the day will be the BOE Official Bank Rate, Monetary Policy Summary, MPC Official Bank Rate Votes, MPC Rate Statement and the United States Unemployment Claims.

Additional economic releases will be the Canadian NHPI, BOE Asset Purchase Facility and MPC Asset Purchase Facility Votes.

View our full economic calendar for a daily roundup of major economic events.

Data releases to monitor:

USD: Unemployment Claims, Import Prices, Wholesale Inventories, Natural Gas Storage, Crude Oil Inventories, 30-y Bond Auction.

CAD: NHPI, Capacity Utilization Rate.

GBP: MPC Official Bank Rate Votes, Official Bank Rate, Asset Purchase Facility, MPC Asset Purchase Facility Votes, MPC Rate Statement, Monetary Policy Summary.


Trade Idea of the Day

AUD/USD

Currently the pair is trading at 0.7047. Traders must monitor the 0.7205 resistance level and the support level of 0.6908 for possible breakouts. A possible scenario would be a movement towards the 0.7069 resistance level where a break may lead to the 0.7110 area. An alternative scenario could be movement towards the 0.6980 support level where a break could lead to the 0.6940 area.

 

[VinsonFinancialsFX]

Financial News September 11, 2015


Central bank of Russia to be on hold today

Consensus expectations are for rates to remain on hold at 11% during today's interest rate meeting. The Russian central bank (CBR) would like to cut rates, given that month on month CPI inflation trended lower recently.

However RUB's decline towards levels last seen during the crisis period in late January complicates matters. A rate cut today would invite further speculation against RUB, which in an environment of deteriorating sentiment towards EM is hardly desirable.

Not only is this an issue, but FX induced pass through inflation could rear its head once again. Interestingly, markets are now starting to price in a hiking cycle, but we think markets are overdoing it.

"Russia, despite its numerous problems, boasts a healthy current account surplus, so it should not be affected in the same way as other emerging markets when the Fed normalizes rates in the coming months. Nonetheless, consistent oil price declines mean that USD-RUB remains a buy on dips for the moment", says Commerzbank.

Weak inflation outlook could bring USD under pressure today
Next week will bring the Fed's rate decision. It is still quite unclear what market momentum the meeting is likely to create. Even if the market has given up on the idea of a rate hike next week the all-important question for the US dollar is how optimistic the Fed will sound as regards the future rate path.

The reason behind the market's much more cautious rate expectations is the more pessimistic inflation outlook. The Fed had originally given the expectation that inflation was likely to rise notably soon as the reason for its plans to start the rate hike cycle. The market does not yet expect that and as a result expects a much slower rise of interest rates.

As a result some movement might be seen in the USD exchange rates today, as there are two events on the calendar for today, producer prices and the University of Michigan's consumer poll, that might provide new information regarding expected price developments.

According to Commerzbank, what is of particular interest are the long term inflation expectations the University of Michigan compiles. The Fed uses these poll-based inflation expectations to judge whether inflation expectations are still anchored or not .

If the expectations record a surprise rise to above 2.7% this is likely to be seen as a signal that the Fed will not correct its outlook notably lower in September and therefore as a signal that first rate rises are due.

If on the other hand the poll-based inflation expectations fall the market is likely to feel confirmed in its doubts of the inflation outlook and trade the US dollar weaker, as market based inflation expectations seem to have eased compared with one month ago.

As at -0.3% mom, a weaker result for producer prices is expected than consensus (-0.1%) there is a lot to suggest that yesterday's USD weakness will continue today. The next psychological resistance in EUR-USD is located at around 1.1450.


Market Review September 11, 2015



Investors are turning their attention to the Federal Reserve, after the Bank of England left interest rates unchanged yesterday, saying that the threat to the world economy from China’s stock-market slump did not signal a slowdown for Britain. The Monetary Policy Committee (MPC) voted 8-1 to keep rates unchanged at a record-low of 0.5%, as widely expected. BOE remains on track to raise its benchmark interest rate next year, with rate setters agreed that signs of a sharper than expected slowdown in China and turbulence in global financial markets have not as yet altered the outlook for the United Kingdom economy. GBP/USD raised sharply on the news, and currently is trading near the 1.5445 area after the recent decline to the 1.5165 area.

The focus is turned now on Federal Reserve rate decisions, after the BOE decided to stand firm and leave rates unchanged. For the past year, the Federal Reserve's policy committee, the Federal Open Market Committee (FOMC), has described the timing of its much-anticipated move to raise interest rates as "data dependent, but with the latest developments in China and the global markets in general, the scenario for rising the rates is seen as a uncertain move. Moreover, IMF has warned that "monetary policy must stay accommodative to prevent real interest rates from rising prematurely".

Released during the Asian session, Japan BSI Manufacturing Index came in at 11.0 versus the estimated -1.9 and New Zealand FPI declined -0.5% compared to the previous of 0.6%.

Released during the early European session, German Final CPI remained flat at 0.0% while German WPI declined -0.8% versus the estimated 0.2%. EUR/USD is currently trading near the 1.1300 area after breaking the 1.1245 resistance.

The main events for the day will be the United States Prelim UoM Consumer Sentiment, PPI and Core PPI.

Additional economic releases will be the United Kingdom Construction Output, Consumer Inflation Expectations, MPC Member Forbes speech and ECOFIN Meetings.

Data releases to monitor:

USD: Core PPI, PPI, Prelim UoM Consumer Sentiment, Prelim UoM Inflation Expectations, Federal Budget Balance.

GBP: Construction Output, Consumer Inflation Expectations, MPC Member Forbes speech.

EUR: ECOFIN Meetings, Italian Industrial Production.


Trade Idea of the Day

EUR/TRY

Currently the pair is trading at 3.4327. Traders must monitor the 3.4700 resistance level and the support level of 3.3944 for possible breakouts. A possible scenario would be a movement towards the 3.4415 resistance level where a break may lead to the 3.4540 area and in long term, it may reach the 3.4700 area. An alternative scenario could be a break below the 3.4240 level, which may lead to the 3.4120 area and further to the 3.4000 area.

 

[VinsonFinancialsFX]

Financial News September 14, 2015


EUR profits from calmer EM markets

During the course of last week EUR-USD slowly but surely crept from levels around 1.1150 to levels at now roughly 1.1350. A reduction in EM risks would now have to be seen as a EUR positive signal.

And indeed the EUR appreciation was accompanied by the EM markets becoming a little calmer. The exchange rates of BRL and TRY have at least stabilised, ZAR was even able to recover slightly and also the CDS spreads of most EM currencies have fallen slightly.

ECB President Mario Draghi had stressed the EM risks at the last ECB press conference and suggested an interpretation according to which the ECB might extend its QE programme should these risks deteriorate.

In particular in comparison with the Fed, whose representatives had presented themselves as totally relaxed about EM risks, the European central bankers seemed much more prepared to react to EM risks.

"One had to assume that a potential EM crisis would have affected the ECB's monetary policy far more than the Fed's monetary policy. Therefore it would have put much more pressure on the euro rather than the dollar. The most recent development now suggests that this scenario will not arise which is therefore a EUR positive signal", says Commerzbank.

Poland to have temporary relief on CHF mortgage conversion
The Polish zloty had a better time last week, with EUR-PLN dropping from 4.24 early last week to below 4.21 levels by the end of the week, PLN outperformed HUF over this period too.

One PLN-supportive development was the abandonment of the infamous CHF mortgage conversion bill which ruling party PO had presented to parliament in the summer.
The proposal initially was that CHF borrowers who were 'under water' could convert their mortgages to local currency at the historical exchange rate, and banks would share 50% of the FX loss, later, this bill was amended by Opposition pressure to increase the banks' share of the loss to 90%.

This bill has been a source of major concern for the Polish banking sector. But now, the parliament's public finance committee has ruled that it will not push the bill through because of the many "constitutional doubts" it involves. CHF conversion legislation will again be taken up only after the new government is in place in late October.

"This is only temporary relief, though, Opposition PiS is leading in all major polls and is unlikely to forget this issue. If PiS forms the government, a harsher version of the same FX conversion bill can be expected, with larger loss implications for banks, to be launched", says Commerzbank.


Market Review September 14, 2015

Minor market movement was noticed during the Asian session this morning as the session was relatively quiet with few economic releases. Released from Japan, Revised Industrial Production declined -0.8% versus the estimated -0.6% while Tertiary Industry Activity rose 0.2%. USD/JPY has turned south during the Asian session opening. The pair is currently trading near the 120.20 area with the key resistance seen at the 120.80 level.

Global markets are relatively noiseless with focus turned mainly on the United States FOMC rate decision. The Fed may raise policy interest rate from 0% for first time since 2008 this week, but China’s economic slowdown and deflation looming worldwide are seen as a warning signal that is not the right time for a rate hike.

Elsewhere, the Reserve Bank of Australia will release meeting minutes on Tuesday while the Bank of Japan will release its Monetary Policy Statement on the same day. Moreover, the Swiss National Bank will have its Monetary Policy Assessment on Thursday. Among these central banks, RBA is the only central bank expected to proceed with further interest rate cut, once again before the end of the year. Furthermore, SNB and BoJ are expected to keep monetary policies unchanged.

Released during the early European session, Swiss Producer Price Index (PPI) declined -0.7% versus the estimated -0.4% and Retail Sales dropped -0.1% missing the estimated 1.5%. USD/CHF is currently trading near the 0.9700 area with the next key resistance seen at the 0.9820 level.

The economic calendar for the day is quite empty. Eurostat will releases the European Industrial Production, which is estimated to rise 0.3% compared to the previous of -0.4% decline.

Data releases to monitor:

USD: Core PPI, PPI, Prelim UoM Consumer Sentiment, Prelim UoM Inflation Expectations, Federal Budget Balance.

GBP: Construction Output, Consumer Inflation Expectations, MPC Member Forbes speech.

EUR: ECOFIN Meetings, Italian Industrial Production.


Trade Idea of the Day

EUR/AUD

Currently the pair is trading at 1.6006. Traders must monitor the 1.6173 resistance level and the support level of 1.5773 for possible breakouts. A possible scenario would be a movement towards the 1.6088 resistance level where a break may lead to the 1.6140 area. An alternative scenario could be a break below the 1.5974 level, where a break may lead to the 1.5920 area.

 

[VinsonFinancialsFX]

Financial News September 15, 2015


BoJ keeps monetary policy stance unchanged

Yen reacted with strength to the Bank of Japan's (BoJ) decision this morning to leave its monetary policy unchanged. Clearly some investors had expected more expansionary monetary policy or predicted a notably more pessimistic outlook.

But the accompanying statement remained largely unchanged.
The few changes that were made are quite something though: the weak economic development of the EM countries has been included into the statement. According to the BoJ the latter is the main reason why exports and industrial production were flat recently. Even though according to the BoJ domestic demand benefits from rising investment as a result of increased company profits.

However, if industrial production was unable to rise further as a result of weak external demand that could quickly be a thing of the past. Economic momentum in Japan does not yet seem sufficiently strong to exist without demand from abroad. Of course the BoJ is well aware that the latter can be fuelled most easily via a weaker currency.

"Even if a weaker currency is only needed to prevent the economy from becoming less competitive as a result of recent depreciation of the Asian currencies. The BoJ is certainly not going to be pleased about further JPY appreciation", says Commerzbank.

Speculation about a further easing of monetary policy is likely to pick up over the coming week, in late October it will be one year since the Japanese bond purchasing programme was last extended.

GBP investors too likely to focus on Fed
UK inflation data for August is also likely to be moderate today. The rate of inflation remains near zero.

And until inflation rises it is premature to speculate about Bank of England (BoE) rate hikes.

However, for the time being GBP investors too are likely to be focussing on the Fed.
"One thing everyone agrees on, the BoE will wait for a Fed rate hike before taking action itself. As of Thursday speculation about the timing of BoE rate hikes will increase again in GBP exchange rates", says Commerzbank.

Fed hoping for benign circumstances
The Fed wants to hike rates. Not on Thursday as that would catch the market on the back foot. But principally it increasingly wants to convince the market that higher rates are appropriate.

There is no other explanation why the US central bankers are so determined to move attention away from low inflation expectations.
Inflation expectations in a survey on consumer expectations published by the New York Fed yesterday also pointed downwards, although that does not become clear on the website due to the way the data was represented . The Fed knows that like a bad sky diver it has missed the best moment to jump.

The majority of analysts agree that the current economic environment has not justified zero rate levels for some time now. However, if during the past six years circumstances were never sufficiently good to hike rates when will they ever be?

"Companies and consumers are unlikely to put pressure on the Fed to hike rates any time soon. A step of this nature is unpopular. And in the end central bankers are only human too. One thing is clear, the better an economic environment the more likely it is that a rate hike will be acceptable", says Commerzbank.

That is what the Fed is hoping for. There is a good reason why it underlines its data dependence. Today's data on retail sales and industrial production in August is likely to confirm again that the Fed will not yet hike rates on Thursday.

"Due to extraordinary effects such as a strong previous month and a decline of petrol prices the data is likely to be moderate. As a result USD exchange rates will continue to be dominated by strategic positioning", added Commerzbank.

Market Review September 15, 2015

During the Asian session this morning, the Reserve Bank of Australia released its Monetary Policy Meeting Minutes, where it was noted that the economic growth is "below average" and that the downward risks to the outlook had increased from overseas developments, such as China’s slowdown. More specifically, RBA members said international developments "had increased the downside risks to the outlook," but it was too early to assess whether Australia’s GDP growth in the coming years would be affected. The central bank was concerned that lower resource exports and soft commodity prices would weigh on the economy, although depreciation in Australian dollar and low interest rates was "expected to support growth, particularly through a larger contribution from net service exports". Moreover, the RBA took an optimistic view regarding employment and said that it "continued to grow strongly in July and the employment-to-population ratio had increased to its highest level since 2013". AUD/USD climbed above the 0.7100 level and currently is trading near the 0.7113 area.

Elsewhere, the Bank of Japan said that the slowing emerging market demand was putting further strains on the economy, while it held off on expanding stimulus, preserving its limited policy options in case an expected United States Federal rate hike, which sparks more global volatility. The recent poor economic data, including weak exports, weak wage growth and soft household spending, has added pressure on the BOJ to expand its already massive stimulus programme to spur on the economy, which contracted in the second quarter. Furthermore, the BoJ reiterated that "Japan's economy continues to recover moderately, although exports and output are being affected by the slowdown in emerging economies." USD/JPY turned south and currently is trading near the 119.62 area.

Released during the early European session, French CPI rose 0.3% versus the estimated 0.4% causing insignificant impact on the EUR/USD, which remained near the 1.1300 area.

The key events for the day will be the United Kingdom CPI and PPI inflation data, the United States Core Retail Sales and retails sales, German ZEW Economic Sentiment and New Zealand GDT Price Index.

Additional economic releases will be the United States Empire State Manufacturing Index, Capacity Utilization Rate and Industrial Production.

Data releases to monitor:

GBP: CPI, PPI Input, RPI, Core CPI, HPI, PPI Output, CB Leading Index.

EUR: German ZEW Economic Sentiment, ZEW Economic Sentiment, Employment Change, Trade Balance.

USD: Core Retail Sales, Retail Sales, Empire State Manufacturing Index, Capacity Utilization Rate, Industrial Production, Business Inventories.

NZD: GDT Price Index.

Trade Idea of the Day

USD/JPY

Currently the pair is trading at 119.69. Traders must monitor the 121.32 resistance level and the support level of 118.77 for possible breakouts. A possible scenario would be a movement towards the 119.38 support level where a break may lead to the 118.90 area. An alternative scenario could be a movement towards the 120.35 resistance level, where a break may lead to the 120.65 area.

 

[VinsonFinancialsFX]

Financial News September 16, 2015


UK sales probably hurt by bad weather
The underlying trend of consumer demand is strong, supported by a high level of consumer confidence and rapid growth in real disposable income.

However, retail sales are highly volatile on a month to month basis.

"In July, sales ex auto fuels rose by 0.4% mom but in August they will have been hurt by the unusually wet weather in the final week so a fall of 0.6% mom is predicted", says Societe Generale.

Temporary recovery of oil prices was driven by speculation

The ICE and CFTC statistics show that the previous increase in oil prices was largely attributable to short covering.

Since mid-August, the number of speculative short positions in Brent on the ICE has fallen from around 130,000 contracts to 97,000 contracts as per 8 September, while those in WTI on the NYMEX have declined from 159,000 to 129,000 contracts.

Overall, however, investor optimism has decreased significantly as compared with May, based on net long positions in both oil types, notes Commerzbank.


Market Review September 16, 2015

Rumours for the upcoming FOMC rate hike give and take. Some traders are expecting a violent move and some others claim that the market has already priced in a small increase in the rates. Despite of this US and global equities recorded an increase and it resumes in the early session today. Traders will be turn their focus to the yields and bonds market as all the volatility will start from there. On Forex market the most pairs are trading in a range waiting for the actual release in order to get a new direction. Nonetheless the opinion that the currency market has priced in the hike is also present.

In UK traders are waiting for the economic releases in order to predictive the possible moves of BoE since it look that there is no solid evidence and necessity for a rate hike this year. Is clear that BoE and FED are highly depended on the upcoming data to structure their monetary policy.

On the data front so far we had New Zealand’s Current account came in at -1.22 billion and Australia’s MI Leading Index m/m released at -0.3%. Later Today we expect the UK data that will be the major event of the session. The Swiss ZEW Economic Expectations and Eurozone CPI data may have an impact to the market. In US session the US CPI data and the Canada Manufacturing Sales data will caused volatility.

Data releases to monitor:

GBP: Average Earnings Index 3m/y, Average Earnings Index 3m/y, Unemployment Rate, 10-y Bond Auction

CHF: ZEW Economic Expectations

EUR: Final CPI y/y, Final Core CPI y/y, German 30-y Bond Auction

USD: CPI m/m, Core CPI m/m

CAD: Manufacturing Sales m/m, Foreign Securities Purchases, NAHB Housing Market Index

Trade Idea of the Day

GBP/JPY

Currently the pair is trading at 184.51. Traders must monitor the 187.31 resistance level and the support level of 181.80 for possible breakouts. A possible scenario would be a movement towards the 183.90 support level where a break may lead to the 183.10 area. An alternative scenario could be a movement towards the 185.20 resistance level, where a break may lead to the 186.00 area.

 

[VinsonFinancialsFX]

Market Review September 17, 2015

The United States consumer prices unexpectedly fell in August as gasoline prices resumed their decline and a strong dollar curbed the cost of other goods, pointing to tame inflation that complicates the Federal Reserve's decision whether to hike interest rates. More specifically, Consumer Price Index declined -0.1 percent, the first decline since January, while Core CPI rose 0.1%. The greenback was pushed lower against the other major currencies after releasing the CPI data, and remained at the same levels today as Markets await FOMC rate decision. The domestic growth in the United States combined with the mixed economic data and the global uncertainty due to the slowdown in China, has made the rate decision a difficult choice for the Fed and put them in a paradoxical situation.

Economists and some policy makers are pressing hard the Fed to continue its stimulus campaign of near-zero-rates because the economic recovery remains far from complete, leaving most Americans still struggling to pay their bills on stagnant incomes. At the same time, Ms. Yellen faces growing internal pressure to start raising rates from Fed officials who are concerned about froth in financial markets and about maintaining control of inflation. The most possible scenario would be Fed leaving the Fed funds rate unchanged at 0.25% for this month and Fed chairwoman, Janet Yellen signaling the chance to raise interest rate in October, by announcing an extra post meeting press conference in that month.

Another event that would be closely monitored today is the quarterly SNB rate decision. The Swiss National Bank is expected to keep interest rates unchanged at -0.75% today while the attention will be on any revision to the economic outlook.

Released during the Asian session this morning, New Zealand GDP rose 0.4% missing the estimated 0.5%, causing insignificant impact on the NZD/USD, which remained in tight range near the 0.6350 area.

Further key events for the day would be the United States Building Permits, Unemployment Claims, Current Account, Housing Starts and Philly Fed Manufacturing Index, while the United Kingdom will release its Retail Sales.


Data releases to monitor:

GBP: Retail Sales.

EUR: ECB Economic Bulletin, Italian Trade Balance.

USD: Building Permits, Unemployment Claims, Current Account, Housing Starts, Philly Fed Manufacturing Index, Natural Gas Storage, FOMC Economic Projections, FOMC Statement, Federal Funds Rate, FOMC Press Conference.\


Trade Idea of the Day

EUR/GBP

Currently the pair is trading at 0.7290. Traders must monitor the 0.7358 resistance level and the support level of 0.7239 for possible breakouts. A possible scenario would be a movement towards the 0.7313 resistance level where a break may lead to the 0.7335 area. An alternative scenario could be a movement towards the 0.7267 support level, where a break may lead to the 0.7245 area and test the support of 0.7239.

 

[VinsonFinancialsFX]

Market Review September 18, 2015

Fed moves opens some upside room for EUR/USD in short term

The USD continued to feel some pressure yesterday already ahead of the Fed, while the EUR performed much better. The moves were generally not huge, though.

Clearly, the Fed meeting has been a great source of uncertainty lately.

And after the meeting, Fed policy uncertainty is not really lower.
"The Fed move opens some more upside for EUR/USD in the short term, especially as it will probably take time for the ECB to respond with dovishness. As for the medium-term trend, a stronger USD is expected on the back of assessment that the US recovery is on track and that a rate hike will come soon", says Nordea Bank.

First Fed rate hike still likely in December

Fed kept rates unchanged yesterday, worried about the global economy, financial market volatility and sluggish US inflation. Still, 13 out of the 17 FOMC members see at least one rate hike this year.

They still seem to give more weight to the almost full achievement of its maximum employment objective than to the disappointments on the inflation front.

"The Fed is still seen on track for a rate hike this year, more likely in December than in October", says Nordea Bank.

Market Review September 18, 2015

The Federal Reserve announced yesterday that it is keeping its benchmark interest rate at or near zero, where it has been since December 2008 at the height of the financial crisis. The decision was made with 9-1 vote, with Richmond Fed President Jeffrey Lacker dissented and called for a 0.25% hike. The lower than expected inflation in the United States, affected by the drop in oil prices and recent volatility in world markets were the main reasons for keeping the rates untouched. “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 FOMC said. Furthermore, FOMC noted that it would take into account a wide range of information, including "readings on financial and international developments" before deciding on a rate hike.

Fed Chair Yellen said the economic performance of China and other emerging market nations "bears close watching." In addition, fears about the effects of a weakening Chinese economy on U.S. companies were a major factor in recent stock market declines. Yellen also cited the appreciation of the dollar against other currencies as a cause for lower-than-desirable inflation in the short-term. The USD fell broadly against the other majors, especially against the EUR, GBP and JPY. The EUR/USD pair broke above 1.1400 and is currently trading near the 1.1410 area. GBP/USD rose to the 1.5585 area, while USD/JPY pair dropped to the 119.35 area.

Elsewhere, the Swiss National Bank left interest rates unchanged as broadly expected, maintaining the -1.25% to -0.25% range for the 3-month Libor as well as the -0.75% setting for the sight deposit rate. Moreover, SNB warned that the Swiss Franc remained “significantly overvalued, despite a slight depreciation” and reiterated that it would remain active in foreign exchange markets to soften the impact on Switzerland’s economy. USD/CHF dropped sharply yesterday, reaching to the 0.9585 area, where is currently trading, after breaking the 0.9633 support level.

The key events for the day would be the Canadian inflation data, where CPI is estimated to rise 0.0% and Core CPI is expected to rise 0.2%.

Additional economic releases will be the European Central Bank’s Current Account and the United States CB Leading Index.


Data releases to monitor:

GBP: BOE Quarterly Bulletin, MPC Member Haldane speech.

EUR: Current Account.

USD: CB Leading Index.

CAD: Core CPI, CPI.


Trade Idea of the Day

EUR/NZD

Currently the pair is trading at 1.7878. Traders must monitor the 1.8020 resistance level and the support level of 1.7650 for possible breakouts. A possible scenario would be a movement towards the 1.7815 support level where a break may lead to the 1.7790 area and even lower to 1.7730. An alternative scenario could be a movement towards the 1.7930 resistance level, where a break may lead to the 1.7975 area.

 

[VinsonFinancialsFX]

Market Review September 21, 2015

ECB worried about EMs
Two more important ECB representatives, this time Benoit Coeure and Peter Praet, voiced their concerns about the weak growth of the EMs, and the implications of that for the euro zone.

The ECB remains very sensitive.
That means two things according to Commerzbank

(1) The euro increasingly turns into a currency whose exchange rate is likely to fluctuate in line with the EM currencies. It was just an episode that it behaved like a safe haven.
(2) Regardless of what the development in the EMs will look like in the near future the ECB is likely to be more sensitive than the Fed.

The Greek elections took place and produced a clearer result than had been expected. That does not seem to affect the euro though. The exchange rate certainly did not react to the news during today's Asian trading session. And indeed the outcome is difficult to interpret.
"Some commentators celebrate the result as a confirmation of the austerity measures on the part of the Greek electorate. Many see the exact opposite. How Greece overcomes these fiscal problems may not be relevant for the euro exchange rate medium to long term, but how Europe deals with these issues may well be", says Commerzbank.

However, yesterday's election really did not provide any new insights into the latter question. That can be only got if the politicians of a now to be formed Greek government were to break the spirit or the letter of the new aid programme.


Market Review September 21, 2015

The Federal Reserve announced yesterday that it is keeping its benchmark interest rate at or near zero, where it has been since December 2008 at the height of the financial crisis. The decision was made with 9-1 vote, with Richmond Fed President Jeffrey Lacker dissented and called for a 0.25% hike. The lower than expected inflation in the United States, affected by the drop in oil prices and recent volatility in world markets were the main reasons for keeping the rates untouched. “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 FOMC said. Furthermore, FOMC noted that it would take into account a wide range of information, including "readings on financial and international developments" before deciding on a rate hike.

Fed Chair Yellen said the economic performance of China and other emerging market nations "bears close watching." In addition, fears about the effects of a weakening Chinese economy on U.S. companies were a major factor in recent stock market declines. Yellen also cited the appreciation of the dollar against other currencies as a cause for lower-than-desirable inflation in the short-term. The USD fell broadly against the other majors, especially against the EUR, GBP and JPY. The EUR/USD pair broke above 1.1400 and is currently trading near the 1.1410 area. GBP/USD rose to the 1.5585 area, while USD/JPY pair dropped to the 119.35 area.

Elsewhere, the Swiss National Bank left interest rates unchanged as broadly expected, maintaining the -1.25% to -0.25% range for the 3-month Libor as well as the -0.75% setting for the sight deposit rate. Moreover, SNB warned that the Swiss Franc remained “significantly overvalued, despite a slight depreciation” and reiterated that it would remain active in foreign exchange markets to soften the impact on Switzerland’s economy. USD/CHF dropped sharply yesterday, reaching to the 0.9585 area, where is currently trading, after breaking the 0.9633 support level.

The key events for the day would be the Canadian inflation data, where CPI is estimated to rise 0.0% and Core CPI is expected to rise 0.2%.

Additional economic releases will be the European Central Bank’s Current Account and the United States CB Leading Index.

Data releases to monitor:

USD: FOMC Member Lockhart speech, Existing Home Sales.

CAD: BOC Gov Poloz speech, Wholesale Sales.

EUR: German Buba Monthly Report.


Trade Idea of the Day

GBP/AUD

Currently the pair is trading at 2.1667. Traders must monitor the 2.1929 resistance level and the support level of 2.1349 for possible breakouts. A possible scenario would be a movement towards the 2.1707 resistance level where a break may lead to the 2.1800 area. An alternative scenario could be a movement towards the 2.1570 support level, where a break may lead to the 2.1485 area.

 

[VinsonFinancialsFX]

Market Review September 22, 2015

JPY and AUD volatilities suggest intensifying correlations
Individual volatilities suggest that the correlation between AUD and JPY should intensify. The implied correlation between USD/JPY and AUD/USD is well approximated by the spread between AUD/JPY and AUD/USD implied volatilities via triangle identities between currency pairs.

A further tightening of the spread will reinforce the negative correlation. This approximation, using only two volatilities, essentially failed when Japan launched Abenomics. At that time, the massive increase in USD/JPY volatility significantly impacted the implied correlation, so that using the three currencies of the triangle was necessary, suggests Societe Generale.

Since mid-2013, however, the correlation between USD/JPY and AUD/USD is accurately tracked by the spread between AUD/JPY and AUD/USD volatilities. This spread recently peaked at 3 vols but is showing signs of mean reversion while being still attractive.

Societe Generale recommends - Short AUD/JPY 3M volatility swap vs Long AUD/USD 3M volatility swap

USDAsia pullback likely temporary
Fed kept rates on hold, the prospect of higher US rates has become less of an issue at this stage for EM Asia, while risks of a sharper slowdown in China and larger CNY depreciation have become increasingly important negative factors, particularly for currencies more closely tied to China's growth, such as the KRW and TWD.

"Any rebound in Asian currencies should be seen as opportunities to reinstate long USD positions. The USD may retrace further in the very short term, but remaining bullish is recommended over the medium term. The CNY, KRW, TWD and THB are least likely to benefit from a short-term USD retracement", says Barclays.

Our long-held INR outperformance view remains unchanged, while authorities are likely more willing to accept a temporary rebound in MYR and IDR than in Korea or Taiwan.

"In terms of data, China's Caixin flash PMI is expected to edge up slightly to 47.5 from its August low (47.3) due to a resumption in economic activity. August industrial production for Taiwan, Singapore and Thailand are all expected to remain in contraction on a y/y basis due to weak China and EM growth", added Barclays.

Philippines and Taiwan central banks are both expected to keep rates unchanged, but the latter could turn more dovish, given recent poor outcomes for exports and growth.

Market Review September 22, 2015

The Asian session this morning was rather quiet with few economic releases, as Japanese banks remained closed in observance of Autumn Equinox. Released during the session, Australia’s House Price Index (HPI) rose 4.7% beating the estimated 2.5%. AUD/USD is currently trading near the 0.7150 area after dropping from the 0.7279 area, which was reached during the previous week. The pair has an immediate resistance at 0.7198 level, above which gains could be extended to 0.7253 level. On the flip side, support is seen at 0.7122 level.

Released during the early European session, the Swiss Trade Balance came in at 2.87B beating the estimated 2.77B. Currently, the USD/CHF pair trades near the 0.9735 area, recovering from the 0.9711 area, which was trading during Asian session.

The key events for the day would be the United Kingdom Public Sector Net Borrowing and MPC Member Shafik speech.

Additional economic releases will be the Eurostat Consumer Confidence, the United States House Price Index (HPI), Richmond Manufacturing Index and the United Kingdom CBI Industrial Order Expectations.

Data releases to monitor:

GBP: Public Sector Net Borrowing, CBI Industrial Order Expectations, MPC Member Shafik Speech.

USD: HPI, Richmond Manufacturing Index.

EUR: Consumer Confidence.

Trade Idea of the Day

CAD/JPY

Currently the pair is trading at 90.87. Traders must monitor the 92.03 resistance level and the support level of 90.09 for possible breakouts. A possible scenario would be a movement towards the 90.55 support level where a break may lead to the 90.20 area. An alternative scenario could be a movement towards the 91.29 resistance level, where a break may lead to the 91.63 area.

 

[VinsonFinancialsFX]

Market Review September 23, 2015

ECB likely to ease policy further before year end?
US might not be a direct immune to a likely China slowdown. In line with market expectations, it is now seen that the Fed delaying its rate liftoff until March 2016, due in part to risks from China.

The delay in the Fed's policy normalization has undermined the USD's momentum and re-enforced EUR/USD range trading, leading to a 'vicious circle' of low macro conviction, exacerbated by declining liquidity, market direction and investor engagement.

The above have led to material trade-weighted EUR appreciation, which in combination with global disinflationary pressures including a sharp decline in commodity prices, have increased the already considerable downside risks to euro area inflation.

"There has been a further sharp drop in market-based measures of euro area inflation expectations. These developments have tightened financial conditions and lead us to expect the ECB to ease policy further before year end", says Barclays

ECB's policy easing may break EUR/USD trading range to downside
The ECB is likely to extend its time-based commitment QE for an additional 6-9 months (ie, through March or June 2017). The greatest effect of this policy change would be to push 2-3 year Eonia swap rates closer to the ECB deposit rate floor of -20bps as the risk of a reversal of ECB balance sheet expansion policies is pushed further into the future.

"EUR/USD is expected to depreciate both in response to the decline in relative rates and the refocusing of market attention on the chasm between euro area and US growth prospects. Alternatively (or additively), the ECB may increase the pace of monthly purchases", says Barclays.

While it may have some of the same signalling effect on the EUR, a little impact is expected on euro area rates from such action. Finally, there also is a low, but non-negligible risk that the ECB cuts its deposit rate further into negative territory, more likely as a secondary action should the euro appreciation persist.

"A further cut is expected in deposit rates to have the greatest negative impact on the EUR as it would remove the lower bound on interest rates, and represents a downside risk to our EUR/USD forecasts", added Barclays.

Market Review September 23, 2015

The preliminary Caixin China manufacturing purchasing managers' index (PMI) fell to a six-and-a-half-year low of 47.0 in September, below the 47.6 forecast. Furthermore, the reading has been below 50 since March. The decline in the flash PMI was mainly led by the new orders and new export orders sub-indexes, suggesting weak domestic and external demand. The recent run of disappointing data has raised concerns around the health of China's economy, leading several banks and international institutions to pare growth forecasts for the country. Earlier this week, the Asian Development Bank lowered growth projection for China for this year to 6.8%, down from March projection of 7.2%, and was below the government's target of 7.0%.

Several currency pairs were affected by the Chinese data released during the Asian session, AUD/USD extended losses, dropping below the 0.7040 level, while NZD/USD dropped to the 0.6255 area.

The GBP/USD pair fell to the 1.5340 area, making it the worst performing major pair for the week so far. The decline was resulted due to weaker UK data and rising expectations of 2015 Fed rate hike.

The key events for the day would be the Eurozone Markit PMI and PMIs from France and Germany in addition to ECB President Draghi speech.

Additional economic releases will be the Canadian Core Retail Sale, FOMC Member Lockhart speech and MPC Member Broadbent speech.

Data releases to monitor:

GBP: MPC Member Broadbent speech.

USD: FOMC Member Lockhart speech, Crude Oil Inventories, Flash Manufacturing PMI.

EUR: French Flash Manufacturing PMI, French Flash Services PMI, German Flash Manufacturing PMI, German Flash Services PMI, Flash Manufacturing PMI, Flash Services PMI, ECB President Draghi speech.

CAD: Core Retail Sales, Retail Sales.

CHF: SNB Quarterly Bulletin.

Trade Idea of the Day

EUR/AUD

Currently the pair is trading at 1.5784. Traders must monitor the 1.5959 resistance level and the support level of 1.5597 for possible breakouts. A possible scenario would be a movement towards the 1.5820 resistance level where a break may lead to the 1.5880 area. An alternative scenario could be a movement towards the 1.5735 support level, where a break may lead to the 1.5682 area.

 

[VinsonFinancialsFX]

Financial News September 24, 2015


AUD/USD likely to reach 0.75 by year end
The Australian dollar has extended its depreciating trend over the past month, with AUD/USD briefly falling below 0.70 for the first time April 2009. The main drivers behind this latest leg lower were further declines in commodity prices amid rising concerns about China, both key to prospects for Australian exports.

An improvement in global risk sentiment and a surprisingly 'dovish' line from the US FOMC at its latest policy meeting saw AUD/USD rally above 0.72 but it remains vulnerable to renewed market volatility.

More positively, comments from RBA Governor Stevens at his recent semi-annual testimony were more upbeat about economic prospects and also suggested he wascomfortable with the current monetary policy setting and level of the exchange rate. Meanwhile, markets still await new Prime Minister Turnbull's policy initiatives.

"Looking ahead, we believe further stabilisation in Chinese data and financial markets, aligned with firming commodity prices, should support the AUD. AUD/USD is forecasted at 0.75 end 2015, rising to 0.78 at end Q2 2016", says Lloyds Bank.

Market Review September 24, 2015

he economic calendar during the Asian session this morning was quite light with releases from New Zealand and Japan. Released from New Zealand, trade deficit widened to NZD -1035M in August, which is higher than the expected NZD -875M. NZD/USD rose above the 0.6300 level despite the disappointing New Zealand trade balance numbers. Released from Japan, Flash Manufacturing PMI dropped to 50.9, missing the estimated 51.3 while All Industries Activity rose 0.2% beating the estimated 0.1%. The Japanese markets re-opened on Thursday after three-day bank holiday while USD/JPY pair remained near the 120.00 area with the next resistance seen at the 120.65 level.

The US Dollar remains the strongest major currency for the week as markets await Fed chair Janet Yellen's speech. Last week the FOMC kept interest rates unchanged, despite the decision, rumours that rate hike would still happen this year remain. Developments regarding the Fed Rate decision will be closely monitored as volatility may arise.

Released during the early European session, Germany’s Gfk consumer climate fell more-than-expected last month to 9.6, from 9.9, missing the estimated 9.8. EUR/USD is currently trading near the 1.1200 area ahead of the German IFO indicator, German Ifo Business Climate and ECB’s Targeted LTRO.

Additional economic releases will be the United Kingdom BBA Mortgage Approvals, the United States Core Durable Goods Orders, Unemployment Claims, New Home Sales and Durable Goods Orders.

Data releases to monitor:

GBP: BBA Mortgage Approvals.

USD: Core Durable Goods Orders, Unemployment Claims, Durable Goods Orders, New Home Sales, Natural Gas Storage.

EUR: German Ifo Business Climate, Italian Retail Sales, Targeted LTRO, Belgian NBB Business Climate.

Trade Idea of the Day

AUD/CHF

Currently the pair is trading at 0.6794. Traders must monitor the 0.7043 resistance level and the support level of 0.6537 for possible breakouts. A possible scenario would be a movement towards the 0.6762 support level where a break may lead to the 0.6680 area. An alternative scenario could be a movement towards the 0.6933 resistance level, where a break may lead to the 0.6980 area.

 

[VinsonFinancialsFX]

Financial News September 25, 2015

Lower demand from EMs and China hit German economy
The PMIs fell more than expected in Germany, pulled down particularly by lower manufacturing confidence. Whereas, the levels are still high indicating a growth rate around 0,4 % in the third quarter of 2015, argues Nordea Bank.

Domestic demand appear to keep up the German incoming orders reflecting lower demand from emerging markets and China. This effect could be more than temporary since it is already visible in incoming orders.

The turbulence in China has had a negative effect on Euro area confidence, the effect being most visible in Germany. The manufacturing PMI of Euro zone fell to 52 from 52.3 and the services sector fell to 54 from 54.4, both still indicating solid growth in September, notes Nordea Bank.


Market Review September 25, 2015

Federal Reserve chair Janet Yellen has made clear that she expects the US interest rates to be raised from their current record low before the end of the year. In her extensive speech in Amherst, Massachusetts, on Thursday, Janet Yellen noted that she “anticipates that it will likely be appropriate to raise the target range for the federal funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter as the labour market improves further and inflation moves back to Fed’s 2% objective”. With her statement, Fed Chair Yellen set out the case for raising rates, for the first time since 2006.

Janet Yellen comments come a week after Fed policymakers voted to keep interest rates at near-zero, where they have been since the 2008 financial crisis. Furthermore, she warned that the United States economy was not yet strong enough to withstand “recent global economic and financial developments” following a worldwide markets slump due to concerns about the health of the Chinese economy. Moreover, she warned that if rates remain low it could lead to excessive risk taking. “Continuing to hold short-term interest rates near zero well after real activity has returned to normal and headwinds have faded could encourage excessive leverage and other forms of inappropriate risk-taking that might undermine financial stability,” she said. She also added that “the more prudent strategy is to begin tightening in a timely fashion and at a gradual pace, adjusting policy as needed in light of incoming data.”

The US Dollar short-lived retreat was waved away by Fed chair Janet Yellen comments, as the greenback covered loses rapidly against other majors. EUR/USD dropped to the 1.1155 area after reaching to the 1.1295 area while USD/JPY rose back to the 120.50 area after dropping to the 119.22 area.

Released during the Asian session, Japan’s national CPI core dropped to -0.1%, which is below the previous of 0.0%, while Tokyo CPI core dropped to -0.2%, in line with consensus. In addition, Corporate Service Price Index (CSPI) rose 0.7% beating the estimated 0.5%.

The key events for the day would be the United States Final GDP, Revised UoM Consumer Sentiment and Flash Services PMI.

Additional economic releases would be the ECB’s M3 Money Supply and Private Loans.


Data releases to monitor:


GBP: FPC Statement.

USD: Final GDP, Final GDP Price Index, Flash Services PMI, Revised UoM Consumer Sentiment, Revised UoM Inflation Expectations.

EUR: M3 Money Supply, Private Loans, German Buba President Weidmann speech.


Trade Idea of the Day


GBP/JPY


Currently the pair is trading at 120.48. Traders must monitor the 120.98 resistance level and the support level of 119.04 for possible breakouts. A possible scenario would be a movement towards the 120.65 resistance level where a break may lead to the 120.90 area, with the next target seen at the 121.30 area. An alternative scenario could be a movement towards the 120.24 support level, where a break may lead to the 119.80 area.

 

[VinsonFinancialsFX]

Financial News September 29, 2015


Factors that needs to coincide to support US Fed hike as well as USD
Even a more pronounced collapse in US consumer confidence today might fuel concerns about its economic momentum and cause the market to doubt that the US economy really is ready for a rate hike.

Whether or not something will happen in December depends on two factors, as per Commerzbank,


Does the data support a rate hike? For the Fed to hike rates now that it has waited for so long everything will have to be right.
The FOMC members will have to have made it clear that they are ready for rate hikes. And for that to happen they need to continue to stress their willingness to act in the weeks to come.

However, both these factors have to coincide for the dollar to be able to benefit. Only at that stage is the market likely to really price in higher interest rates and only then will EUR/USD dare move below 1.10 again. So for the time being the FX market is dominated by risk sentiment.

USD/JPY to maintain its sideways move due to optimistic Fed outlook

Bank of Japan (BoJ) governor Haruhiko Kuroda continued to sound optimistic in yesterday's speech that Japan was well on the way towards reaching the 2% inflation target and decent growth. However, he admitted that the positive feedback mechanism between employment growth, wage rises and higher inflation still had to gain momentum to reach the inflation target.

He underlined that the BoJ would adjust its monetary policy without hesitation should the inflation trend change as a result of new risks. As the inflation trend moves much more pessimistically than the BoJ, the question is whether there are any further signs that risks for inflation are on the up.

In addition to the current fall in long term inflation expectations, attention centres on the recent rise of the yen as a result of risk aversion and weaker demand in Q2. The data on industrial production and retail sales due for publication tonight will provide an insight into whether at least the latter is beginning to change.

"At present the demand for the yen as a safe haven is clearly still dominating over concerns about further monetary policy easing in Japan. USD/JPY is once again trading below 120. However, the stronger the yen the more difficult it will become to reach the inflation target and the more likely further BoJ measures get", says Commerzbank.

For the time being USD/JPY will therefore maintain its sideways move around 120 before the currency pair will move back towards 125 as a result of a more optimistic Fed outlook.


Market Review September 29, 2015

“A later lift off from near-zero interest rates will better help the United States economy, and the best time for a rate hike may not come until the middle of next year,” Chicago Federal Reserve President Charles Evans said on Monday at Marquette University. Furthermore, Fed Evans noted that normalizing policy too early may bring risks amid pressure on inflation from low energy prices and "subdued" wage growth. Moreover, he said that "before raising rates, he would like to have more confidence than he do today that inflation is indeed beginning to head higher."

New York Fed President William Dudley seems to have different opinion regarding the Fed’s Interest Rate Decision, as he said that “the Fed will probably move this year, and its October meeting remains a possibility”. He, however, stressed that the decision would be depend on the health of US economy and financial conditions, as well as global economic development. The comments follow Fed Chair Janet Yellen's remarks last week that it will likely be "appropriate" to hike rates "sometime this year". The Fed has two meetings remaining this year in October and December.

Elsewhere, the Reserve Bank of India (RBI) reduced its repo rate to 6.75% from 7.25%, with economists having forecast it would trim rates to 7%. The repo rate is the level at which the central bank lends to commercial banks. The latest cut takes interest rates in the country to the lowest level in four and a half years. A rate cut is being seen as a key trigger to boost investment demand in an economy where credit growth has dipped to a multi-year low.

Released during the early European session, German Import Prices fall -1.5%, which is more than the expected -1.4%, while Spanish Flash CPI declined -0.9% versus the estimated -0.6%. EUR/USD was supported overnight as EUR presses on making fresh highs. EUR/USD is currently trading near the 1.1255 area, while EUR/GBP rose above the 0.7400 level and currently is trading near the 0.7418 area.

The key events for the day would be the United States CB Consumer Confidence, the United Kingdom Net Lending to Individuals and the Canadian RMPI.

Additional economic releases would be BOE Gov Carney speech and the United States Goods Trade Balance.

Data releases to monitor:

GBP: Net Lending to Individuals, M4 Money Supply, Mortgage Approvals, CBI Realized Sales, BOE Gov Carney speech.

USD: Goods Trade Balance, S&P/CS Composite-20 HPI, CB Consumer Confidence.

EUR: Italian 10-y Bond Auction.

CAD: RMPI, IPPI.

Trade Idea of the Day

EUR/USD

Currently the pair is trading at 1.1254. Traders must monitor the 1.1363 resistance level and the support level of 1.1105 for possible breakouts. A possible scenario would be a movement towards the 1.1302 resistance level where a break may lead to the 1.1340 area. An alternative scenario could be a movement towards the 1.1204 support level, where a break may lead to the 1.1170 area.

 

[VinsonFinancialsFX]

Financial News September 30, 2015


Is Japan under risk of recession?
Once again industrial production in Japan disappointed in August. Production fell by 0.5% mom. Analysts had expected a rise of 1%. Similarly, last night, the country's retail sales remained below expectations .

However, weak macro data long since stopped being a reason for the JPY to come under pressure, notes Commerzbank. It continues to react mainly to changes in risk perception.

At the same time data such as that published last night does create increasing pressure, as there is a risk of Japan sliding back into recession for the second time within Prime Minister Shinzo Abe'e time in office. As it increasingly looks as if abenomics will fail the pressure on the government to spend even more money is mounting. And of course politicians will make increasing demands of the Bank of Japan.

However, the latter has hardly any options left for making its monetary policy any more expansionary. Should it become clear at some stage that there are no options left for Japanese officials to act weak macro data will probably stop being like water off the JPY's back.



Market Review September 30, 2015

The Asian session this morning was rather busy with economic releases from New Zealand, Japan and Australia. Released from New Zealand, ANZ Business Confidence improved to -18.9 in September, from -29.1 in the prior month, while Building Consents declined -4.9%. Released from Japan, industrial production dropped -0.5%, versus the consensus of a 1.1% increase, while Retail Sales rose 0.8% missing the estimated 1.2%. Released from Australia, Building Approvals dropped -6.9% versus the estimated -1.8% and Private Sector Credit rose 0.6% beating the estimated 0.5%.

The US Dollar seems to be struggling in tight range against the other majors. USD/JPY is trading below the 120.00 level, GBP/USD above the 1.5140 level and EUR/USD remained above the 1.1200 level .

Elsewhere, the low inflation data for September from Germany and Spain raised the prospect of the Eurozone inflation number falling below zero. While ECB officials appear to be maintaining their confidence in the Eurozone’s inflationary outlook, soft readings are likely to raise expectations that the central bank will boost its asset-purchase program to support the region’s economy. The EUR has remained relatively firm after ECB Governing Council member Jens Weidmann said concerns about deflation had dissipated, signalling a lack of worry about diminishing price pressures.

Released during the early European session, Japan’s Housing Starts increased 8.8% beating the estimated 7.8%, United Kingdom Nationwide HPI increased 0.5% versus the estimated 0.4%. Furthermore, German Retail Sales dropped -0.4% missing the estimated 0.2%, while French Consumer Spending rose 0.3% beating the estimated 0.2% and Consumer Spending remained flat versus the estimated 0.4% increase. Released from Switzerland, KOF economic barometer dropped unexpectedly last month.The KOF Economic Research Agency said that its economic barometer dropped to a seasonally adjusted 100.4, from the previous of 101.2. Analysts had expected the KOF economic barometer to remain at 101.2.

The key events for the day would be the Eurozone employment report and inflation data, the United States ADP Non-Farm Employment Change, Fed Chair Yellen speech, the BOE Current Account and the Canadian GDP.

Additional economic releases would be Chicago PMI, the United Kingdom Final GDP and German Unemployment Change.

Data releases to monitor:

GBP: Current Account, Final GDP, Index of Services, Revised Business Investment.

USD: FOMC Member Dudley speech, ADP Non-Farm Employment Change, Chicago PMI, Crude Oil Inventories, Fed Chair Yellen speech.

EUR: German Unemployment Change, Italian Monthly Unemployment Rate, CPI Flash Estimate, Core CPI Flash Estimate, Unemployment Rate, Italian Prelim CPI.

Trade Idea of the Day

GBP/USD

Currently the pair is trading at 1.5141. Traders must monitor the 1.5210 resistance level and the support level of 1.5050 for possible breakouts. A possible scenario would be a break of the 1.5130 support level where it may lead to the 1.5090 area. An alternative scenario could be a movement towards the 1.5160 resistance level, where a break may lead back to the 1.5200 area.