7 October, 2015
It appears the FX market continues to play down a U.S. Fed rate hike this year. The EUR and the USD have been falling behind emerging and commodity related currencies as markets shift to a risk-on mode. This could be because of hopes that more stimulus will be generated by Europe and Asian policy makers. Technically, the EURUSD remains range bound with current price now testing the 1.1280 minor resistance. In the immediate short term, selling pressure may emerge near the 1.1280 area, with short traders possibly seeking a 1.11 target. However, a clean break over the 1.1280 resistance may entice the EURUSD bulls to commit to further long positions for a target just below the 1.1460′s.
Asian stock markets advanced with the Hang Seng outperforming and opening the way for further gains in Europe. Stock markets are benefiting from the recent weak data that pushes the odds that global monetary policy will remain accommodative for longer, therefore, cheap U.S. dollars should continue to flood the market with companies and investors betting on consumption to fuel corporate earnings.
The BoJ kept policy on hold. In Europe, the BoE starts its 2-day meeting and it’s widely expected that any change in policy is on hold for now. The U.S. and German production fell in August. This data of disappointing manufacturing orders fits in well with the markets view that the ECB could be moving towards further QE.
In the U.S. solid gains in consumption and business spending has been on the upswing, and inflation is still below the Fed’s 2% target. The Fed’s Williams said that he does not believe that there’s been a fundamental shift in the economic outlook, and he remains bullish on China.
Currency Pairs, Grouped Performance (% change)
The EUR is weaker against the majors as Europe looks to increase QE and stimulate growth after a softer GDP number for the quarter. The USD is slightly lower as the impact on the Fed rate-hike decision is more uncertainty and markets will increase in volatility with a growing feeling that the Fed has miscalculated. The GBP is not moving much, although downward bias may prevail now that the U.K. economy continues to look a little softer and expectations are that the BoE will not tighten monetary policy prior to a move by the Fed. The NZD is broadly higher as commodity markets hold ground, with Gold and Copper holding on to recent gains.
Significant daily support and resistance levels for these pairs are:
Main Macro Events Today
• EUR German Industrial Production: dropped 1.2% m/m. Initial expectations had been for a modest rise over the month, but with much weaker than expected orders numbers yesterday, a correction had always looked likely. Jul was revised up to 1.2% m/m from 0.7% m/m reported initially, but the three months trend rate nevertheless fell into negative territory.
• GBP Manufacturing Production: 0.5% actual came in higher by 0.10% than the 0.40% forecasted number.
• JPY BoJ Monetary Policy Statement: The BoJ announced unchanged policy, as was widely expected, maintaining bond and other asset purchases (QQE) at an annual rate of Y80 tln. In the statement the central bank remarked that the economy had “continued to recover moderately, although exports and production are affected by the slowdown in emerging economies.”
• CAD Building Permits: Building permit values are expected to rise 1.0% in August after the 0.6% dip in July. The Bank of Canada has assured that Canada is not at risk of a national housing bubble and that the soft landing remains in play.
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