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ECB comes in focus as the much anticipated meeting approaches - MUFG


FXStreet (Delhi) – Derek Halpenny, Research Analyst at MUFG, suggests that we had been pretty convinced that the ECB would not take any action at the forthcoming meet but have to admit we are not as convinced after reading the comments made by ECB Governing Council member Nowotny in a speech in Warsaw yesterday where he was pretty pessimistic in regard to current economic conditions in Europe.

Key Quotes

“If the dollar does advance sooner rather than later, it may well be versus the euro given the monetary policy meeting is taking place next Thursday. In admitting that the ECB was “clearly” missing its inflation target he stated that additional “structural instruments” were required in order to get growth going in the euro-zone.”

“There was a strong message to governments to do more in regard to structural reform but the reality in the euro-zone for some time has been that the onus has rested on the ECB to take action. While Nowotny and probably most ECB Council Members are frustrated with that, the ECB may soon feel obliged to take additional action.”

“The comments from Nowotny appear more grim than his previous comments and that may well reflect the evidence of renewed economic weakness in Germany. The 5.2% plunge in exports and weak factory orders and industrial production highlight the vulnerability of Germany to external demand weakness. This of course is the country where perhaps fiscal stimulus should now be implemented but constitutionally Germany’s hands are tied – a fact that must surely be fuelling the disinflationary impetus in the euro-zone as a whole.”

“Our view at this point is that the ECB will refrain from any action next week but will be a little more explicit in indicating that they are closer to additional easing with an eye on the December meeting.”

“By then it will be clearer whether the FOMC will act or not in December and the ECB will have a much clearer view of broader financial market conditions and whether the “unwarranted tightening” of the monetary stance has persisted. But Nowotny has thrown a degree of greater uncertainty into next week’s meeting and hence the euro is unlikely to advance much ahead of that key event.”





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Keep your eyes on US industrial production and Michigan survey – Rabobank

FXStreet (Delhi) – Philip Marey, Senior US Strategist at Rabobank, suggests that in the US, the impact of the economic growth slowdown in China and other emerging economies will be reflected in the industrial production figure for September.

Key Quotes

“Industrial production fell during the first five months of the year due to the appreciation of the dollar and the decline in the oil price. In June, industrial production remained unchanged and July saw a short-lived rebound that came to an end in August when output fell by 0.4%. The consensus expectation is a further decline by 0.2%.”

“Meanwhile, the University of Michigan survey for October will show how US consumer sentiment is affected by these developments. Earlier this week we saw a weak retail sales report for September that reflected the deterioration in consumer sentiment in the same month. The consensus expectation is a modest rebound in sentiment in October.”

“Note that the inflation expectations in the survey are of special interest to the Fed. After all, as long as inflation expectations remain anchored, the current spell of low inflation is likely to be a transitory phenomenon.”





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USD: Dudley sets conditionality on a 2015 Fed lift-off - MUFG

FXStreet (Delhi) – Derek Halpenny, Research Analyst at MUFG, notes that the US Fed’s Dudley did repeat that a 2015 rate increase was his current view however his comments were certainly a bit more nuanced with his rate timing view conditional on his forecast being achieved.

Key Quotes

“Given the explicit comments from FOMC Governors Brainard and Tarullo for a delay in a rate increase to 2016, the markets were very focused on Vice Chair Dudley’s speech yesterday.”

“He did then also say that the recent evidence points to the economy slowing. So really as usual, the FOMC is data dependent and hence the payrolls reports on 6th November and 4th December will be crucial as will consumer spending data for the month of October, released in November.”

“Cleveland Fed President Mester also spoke yesterday and there was no surprise in her comments which have been consistent in calling for a rate increase to take place this year.”

“Our sense though is that the dollar remains vulnerable to further weakness given the US economic data is likely to remain mixed for now. While we believe the Fed should be lifting rates anyway, the financial markets continue to price more willingly the prospect of a delay into 2016 and short-term yields suggest the dollar is prone to further weakness. With little in the way of top tier data now until the start of November, the dollar is unlikely to derive support from developments in the US.”





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Majority of Fed’s voting members favour a 2015 lift-off - RAbobank



FXStreet (Delhi) – Philip Marey, Senior US Strategist at Rabobank, suggests that if we look at the reactions of the voting members of the FOMC, there still seems to be a large majority that would like to hike before the end of the year. In the end, their case will depend on the data that we are going to see before the meeting on December 15 and 16, and that is still a lot, the analyst adds.

Key Quotes

“The US CPI data for September were better than expected by the market. Headline inflation slowed down to 0.0% in year-on-year terms, from 0.2% in August, but the consensus expectation of negative inflation (-0.1%) was averted.”

“What’s more, core inflation – which excludes the volatile food and energy prices – unexpectedly rose to 1.9% from 1.8%. These data should bolster the Fed’s confidence that inflation will return to the 2% objective over the medium term.”

“This was reinforced by the decline of US initial jobless claims to 255K after 262K a week before. This matches the 2015 low reached earlier in mid-July. Note that 255K is not only the lowest point of this year, but in fact the lowest since 1973. Despite the slowdown in the world economy, US businesses are keen to keep their personnel on board.”

“Meanwhile, the first two US business surveys for October both indicated a deterioration, although at a milder pace than in September. However, the Empire manufacturing index (-11.4) and the Philly Fed index (-4.5) both fell short of consensus expectations.”

“New York Fed President William Dudley, a permanent voter on the FOMC, acknowledged that the economy is slowing. Nevertheless, he still favors raising rates later this year if his forecasts are met.”





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EUR/USD flatlined around 1.1030, IFO on sight

FXStreet (Edinburgh) - The single currency has started the week on the right footing vs. the greenback, with EUR/USD sidelined around the 1.1030 area so far.

EUR/USD focus on IFO

The pair has managed to regain some strength an advance towards the current 1.1030/40 region during the Asian trading hours after briefly testing sub-1.1000 levels last Friday.

Spot has broken below the key support at the 8-month uptrend on Friday, following the increased selling pressure after the ECB meeting. In the meantime, EUR is expected to remain under pressure as today’s German IFO is expected a tad lower than the previous readings.

EUR/USD relevant levels

As of writing the pair is up 0.12% at 1.1031 and a breakdown of 1.1000 (psychological level) would target 1.0915 (low Jul.7) and finally 1.0847 (low Aug.5). On the flip side, the next hurdle lines up at 1.1074 (8-month uptrend) followed by 1.1117 (200-day sma) and then 1.1153 (61.8% Fibo of 1.0808-1.1713).

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EUR/USD firmer, advances near 1.0980

FXStreet (Edinburgh) - The European currency keeps alive its march north on Thursday, sending EUR/USD to highs near 1.0980 albeit at snail pace.

EUR/USD indifferent post-EMU data

The pair kept the composure after October’s mixed results in the euro area saw Business Climate and Economic Sentiment coming in above estimates, while Services Sentiment missed consensus and Consumer Confidence matched forecast at -7.7.

Next of relevance will be the preliminary inflation figures in Germany for the current month, ahead of the flash Q3 GDP figures and PCE in the US economy.

EUR/USD levels to watch

As of writing the pair is advancing 0.43% at 1.0971 and a break above 1.1021 (76.4% Fibo of 1.0808-1.1713) would target 1.1113 (200-day sma) en route to 1.1162 (100-day sma). On the other hand, the initial support lines up at 1.0894 (low post-FOMC Oct.28) followed by 1.0847 (low Aug.5) and finally 1.0808 (low Jul.20).

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EUR/USD ready to resume the downside?

FXStreet (Edinburgh) - After hitting multi-month peaks just above 1.1700 the figure following Chinese events, EUR/USD has been retreating since then and is currently about to close its second consecutive week in red figures.

Fed’s lift-off in September?

Positive readings from the US labour market during August have teamed with previous auspicious results in the US economy, particularly the better-than-expected GDP revision for the second quarter.

All adds to increasing market expectations of the Fed resuming its normalization of the monetary policy this month after almost a decade, giving at the same time fresh oxygen to the greenback and opening the door to a resumption of the broader bearish prospect for the pair, that is, the divergence in monetary policy by the ECB and the Fed.

Hence, the possibility of the Fed hiking rates this month plus the return of the activity in the Chinese markets on Monday emerge as the main drivers for the global sentiment in the upcoming sessions.

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GBP/USD deflates to 1.5130 on UK data

FXStreet (Edinburgh) - The sterling is losing its shine during the European morning, now dragging GBP/USD to the 1.5140/30 area.

GBP/USD weaker on UK job figures

The pair has surrendered part of the initial strength after UK’s Claimant Count Change has increased by 3.3K during October vs. 1.5K expected and 0.5K previous. Further data saw the unemployment rate ticking lower to 5.3% in September while Average Earnings have come in below expectations.

Ahead in the session, the pound will remain under pressure in light of the speech by Governor M.Carney, while the renewed dovish stance from the BoE at its meeting last week still lingers over the markets.

GBP/USD levels to watch

At the moment, the pair is advancing 0.17% at 1.5143 facing the next resistance at 1.5204 (38.2% of 1.5496-1.5023) followed by 1.5233 (7-month uptrend prev. support now resistance) and then 1.5314 (55-day sma). On the other hand, a break below 1.5023 (low Nov.6) would aim for 1.4948 (low Jan.23) and finally 1.4563 (2015 low Apr.13).

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GBP/USD remains vulnerable – Commerzbank

FXStreet (Edinburgh) - In the view of Karen Jones, Head of FICC Technical Analysis at Commerzbank, the pair remains vulnerable after being rejected from the 1.5340 area.

Key Quotes

“GBP/USD’s burst higher has been thwarted by the 200 day ma at 1.5341and is back under pressure. We look for the correction higher to have terminated at 1.5337. Resistance above here intensifies we have the 1.5397 resistance line then the 1.5515 October high”.

“Below 1.5107 (October low) is needed to refocus attention on the downside towards 1.5020/00 and below 1.5000 will target initially the 1.4860/78.6% retracement of the move up from April. This is regarded as the last defence for the 1.4568 April low”.