• Add

USD broadly higher on renewed confidence in US economy, Eurozone confidence set to decline

Swissquote bank

- After FOMC’s latest decisions, concerns about the efficiency of QE are mounting

- Today’s Consumer Confidence data for September is expected to decline with the European economy not providing sustainable growth and China’s slowdown threatening the Eurozone global outlook

- Although it seems that hawks have lost their faith in a Fed trapped in global turmoil, we remain bearish on the EURUSD as new expectations for a Fed rate hike before year-end will grow and negative first results of the European QE through data will be released

- AUD/USD is still trading within its long-term declining channel as investors are still reluctant to reload long AUD/USD position

Dennis Lockhart, Federal Reserve Bank of Atlanta President concurs with his colleagues (San Francisco’s Williams, St. Louis’ Bullard and Richmond’s Lacker): the Fed is determined to raise rates in 2015. Lockhart argued that the risks of a lift-off on the domestic economy prevented the Fed from backing up its words with action as market volatility and uncertainties were reaching record levels. Despite Fed members’ optimism, the market is pricing in a 20% probability of a rate hike in October and 44% in December. It would seem that the hawks have lost their faith in a Fed, which is trapped in global turmoil.

Nevertheless, Fed members’ upbeat comments helped US stocks to recover as the S&P 500 added 0.46% in New York yesterday, while the Dow Jones Industrial Average and the Nasdaq rose 0.77% and 0.04%, respectively. US futures are mixed in Tokyo despite strong gains from most of Asian regional markets. Japanese markets are still closed and will remain so until tomorrow. In China, stocks continue to recover as the Shanghai Composite rose 1.46% and the Shenzhen Composite 1.44%. In Hong Kong, the Hang Seng followed mainland’s lead and soared 1.47%.

In the FX market, EUR/USD is reversing gains from the last two weeks as investors regain confidence in the US economy. Meanwhile, in Germany, consumer confidence is expected to have weakened to 8 from 9.2 in August while August’s retail sales are anticipated to have grown 0.3%m/m, after gaining 0.5% in the previous month.

Australian shares rose 0.74%, helped by a strong consumer confidence in September. ANZ Roy Morgan weekly consumer confidence index jumped to 114.5 points from 105.3 a week ago as Malcom Turnbull took over leadership of the Liberal Party from Tony Abbott. Australian people are pretty optimistic regarding Abbott’s government’s ability to reinforce an economy, which suffers from weaker demand from China. AUD/USD escaped its short-term downtrend channel as it successfully validated a break of the 0.70 resistance a few days ago. However, the Aussie is still trading within its long-term declining channel. The currency pair already failed once to move above its 50dma (around 0.7240 at the moment) as global investors are still reluctant to reload long AUD/USD position.

In Europe, equity futures are mixed this morning with the Footsie edging lower by -0.12%, the CAC 40 rising 0.32%, the DAX +0.44% and the SMI sliding -0.32%. EUR/CHF continues to grind lower after failing to break the strong 1.10 threshold. In Switzerland, trade surplus came on the soft side as it contracted to CHF 2.87bn in August from a revised surplus of 3.58bn in July. Exports continued to deteriorate in July and contracted 2.4%m/m, after falling 2.3% in the previous month. The strength of the Swiss franc is also affecting imports, which fell 4%m/m in August (-1.8% in July), as a weaker demand for Swiss goods reduced raw materials and manufactured products.

*** Yann Quelenn – Market Analyst: “September’s Consumer Confidence data will be released today. The data is expected to decline slightly to -7 from -6.9. However, sentiment will still hold around its highest level since 4 years. We think that the decrease will reflect the fact that the European economy is not providing sustainable signs that growth will accelerate.

In addition, there are growing concerns about the efficiency of using quantitative easing to boost the economy. The Japan and the U.S. examples are still struggling to stabilize their economies despite the massive stimulus programs of the past years. There is in fact no substantial evidence that proves the validity of such a monetary tool. However, it seems that it was the last solution for the European Central Bank to get back on path to growth. Furthermore Mario Draghi announced earlier this month that the ECB’s quantitative easing program is set to be expanded. The only thing QE does is that it brings the illusion of a strong economy through overvalued equity markets.

Consumer Confidence will also be affected by the Chinese slowdown, which is threatening the Eurozone global outlook. European exports toward China are likely to continue their decline and this will drive revenues lower. We remain bearish on the EURUSD. Indeed new expectations for a Fed rate hike before year-end will grow and negative first results of the European QE through data (GDP in particular) will be released.”***

Today traders will be watching interest rate decision from Turkey; mid-month inflation, current account balance, foreign direct investment and formal job creation from Brazil; Richmond Fed manufacturing index and FHFA house price index from the US.

Source: https://en.swissquote.com/fx/news-and-live-signals/daily-forex-analysis/2015/09/22
!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|} !"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}