Trading news

Fed minutes debate, Asian shares buoyed on dovish minutes, Canada jobs report

- Fed will have to wait until at least March 2016 before considering raising rates again
- Commodity currencies may further benefit from commodity rally and global risk-on sentiment
- AUD/USD sent a strong bullish signal, next resistance can be found at 0.7440, while on the downside a support lies at 0.6939
- EUR/USD is moving higher given the general risk-on environment, may target 1.15 as the next one
- Canada, we consider that the monetary policy will remain unchanged at 0.5% at next BoC meeting, as the recent surge in commodities should provide some traction to the economy
- We remain bearish on the loonie, which is holding below 1.3000 versus the greenback.  USDCAD may go back to 1.3200
***Peter Rosenstreich: "The debate over the Fed meeting minutes is in full swing this morning. From our vantage point, the FOMC minutes reflect the dovish tone of the September 17th statement rather than the hawkish comments delivered afterwards. In our interpretation of the minutes, the well-publicized view that this decision was a close call is unfounded. In fact we saw nothing that really suggested that a September rate hike was on the table. The committee remains split, but the strength of the doves’ arguments looks to have won out. The minutes focused on low inflation and anxiety over global volatility above emphasizing strong labor markets (main cusp of hawkish members argument). In clear wording that global risk had taken prominence over domestic factors, the committee stated:  “risks to the outlook for economic activity and inflation, decided that it was prudent to wait for additional information confirming that the economic outlook had not deteriorated and that inflation would gradually move up toward 2% over the medium term.” Then commenting further: “global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term” to push home the significance. Market reaction was minimal with a slight shift lower in rates and a softer USD, while emerging market and commodity currencies continue to be the primary beneficiaries of a less probable 2015 rate hike. With the threat of a near term Fed rate hike curtailed, FX traders are actively seeking yield enhanced high beta currencies such as IDR, RUB, MYR and BRL. Interestingly, the Fed has trapped itself in a difficult position. The “third” mandate indicates that a hike will only occur when there is stability in global markets. Yet the primary catalyst for volatility is directly related to the Fed’s hiking expectation (not Asian growth prospects as some have suggested). In the current environment, the USD upside should be limited against G10, however we could see some significant recovery in the much maligned EM currencies.” ***
Market participants were expecting that the hawkish speeches delivered by FOMC members in the aftermath of the September meeting would be reflected in the minutes. There is nothing of the sort! The minutes showed that the Committee wasn’t even close to tightening its monetary policy in September and was still trying to find some common ground concerning the most appropriate timing to start raising rates. In our opinion, the Fed will have to wait at least until March 2016 before starting to talk about raising rates again. Asian bourses cheered the prospect of low interest rate and, more importantly, the fact that the Fed will remain on the side-line in the next few months. The Nikkei 225 climbed 1.38% to 18,388, while the broader Topix index rose 2.02%. In mainland China, stock continue to trade higher with the Shanghai Composite and the Shenzhen Composite up 0.99% and 1.10%, respectively. Elsewhere, in Hong Kong the Hang Seng rose 1.32%, in Singapore stocks are up 1.85%, while in India the Sensex added 0.92%.
In the FX market, commodity currencies get a boost from commodity rally and global risk-on sentiment. WTI is approaching its 200dma at around $50.97 per barrel, up almost 35% from its September 24th low of $38.16. Iron ore futures for delivery in January rose more than 4% in the Asian session. Copper is up 2.58%, gold 0.66%, silver 0.58%, palladium 0.97% and platinum 1.96%.
AUD/USD sent a strong bullish signal when it broke the strong resistance at 0.7280 (high from September 18th). We believe there is still some upside potential. The next resistance can be found at 0.7440, while on the downside a support lies at 0.6939. In New Zealand, the Kiwi jumped more than 7% since September 23rd, reaching $0.6699 in New York yesterday. However, NZD/USD is still trading below the 0.67 psychological threshold.
*** Yann Quelenn, Market Analyst: “Commodities prices are weighing on the Canadian economy. For the two first quarters, GDP shrank 0.8% q/q and 0.5% respectively. However, the Canadian economy expanded 0.3% in July. In our view this was due to the temporary surge in oil prices at that time. Meanwhile, volatility is still massive so the fundamentals remain at stake and crude oil prices collapsed below $40 a barrel in August.  When commodities collapse, Canada holds it breath. As a result Canada’s trade deficit has widened to $2.53 billion in August from $0.59 billion in July and exports has dropped 3.6%, which represents their biggest decline since January 2012.
The Bank of Canada has already cut rates twice this year in an effort to offset the effects of the oil decline. The new rate decision meeting will be held on October 21st. We believe that the monetary policy will remain unchanged at 0.5% as the recent surge in commodities should provide some traction to the Canadian economy.
On top of that, unemployment rates for September will be released today. The data is expected to remain unchanged at 7%. A weak read of this week’s employment report could be interpreted as a possible contagion from the U.S. We remain bearish on the loonie, which is holding below 1.3000 versus the greenback. On the medium term, we target the USDCAD to go back to 1.3200.”***
In Europe, futures are all blinking green on the screen with the DAX up 0.54%, the CAC 40 0.24%, the SMI 0.28%, the Footsie 0.94% and the Euro Stoxx 600 0.53%. EUR/USD is moving higher this morning on encouraging data from France. Industrial production rose 1.6%y/y in August versus 0.2% expected, while manufacturing production expanded 2.2%y/y versus 1% median forecast. Given the general risk-on environment, we continue to see some upside potential in EUR/USD with 1.15 as the next target.
Today traders will be watching inflation report from Norway; industrial production from Italy; trade balance from the United Kingdom; unemployment rate and net change in employment from Canada; import price index and wholesale inventories from the US.

Friday, 09 Oct, 2015 / 8:15

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