- Recent IMF comments echo the uncertainty surrounding western countries despite emerging countries being said to be the driving forces of the global recovery
- Fed QE4 is definitely not far-off
- USD/JPY likely to remain in its 118.61-121.75 range
- AUD/USD may find support at 0.6986, while a resistance can be found at 0.7440
- EUR/USD is approaching a key area and on the downside, a support can be found at 1.1087, while on the upside, the closest resistance lies at 1.1296
***Yann Quelenn, Market Analyst: “According to the IMF Head Christine Lagarde: “We are in a recovery process whose pace is decelerating”. These words underpin the uncertainty facing western countries despite emerging countries being said to be the driving forces of the global recovery. For several years now we have been told that the recovery is in progress through optimist forecasts. Yet, we remain in an era where economic forecasts are constantly revised down.
The Federal Reserve has overturned such thought by being afraid of increasing interest rates of a quarter point after seven years so called ZIRP (zero interest-rate policy). The truth is that major countries have astonishing debt, above 100% GDP in the US and around 230% in Japan. Furthermore, this does not include all the off-balance-sheet commitments. These figures may likely be considerably higher. The United States owns $18 trillion debt. A rate hike will increase their annual deficit by $45 billion a year. At this point, there is no more room left for the Federal Reserve to act. QE4 is definitely not far-off. Meanwhile, Lagarde has revised down the IMF global economic growth forecast of 3.3% for this year, which are “no longer realistic”. She added that nevertheless, we will remain above the 3% threshold. Optimism is definitely an IMF virtue.”***
After a quiet week due to a relatively light economic calendar, we are ahead of a big week of economic data. The market has had plenty of time to digest the decision by the Federal Reserve to keep the federal fund rate unchanged and took into account hawkish comments from various Fed members. Over the week, the greenback appreciated versus all G10 currencies, without exception. We are starting the week with the Fed’s favourite measure of inflation, the personal consumption expenditure. We'll also get personal income and spending as well as pending home sales and the Dallas manufacturing activity index. S&P/CaseShiller index and consumer confidence are due tomorrow while ADP employment change and the Chicago purchasing manager barometer will be released on Wednesday. On Thursday, we’ll get jobless claims, Markit manufacturing PMI and ISM manufacturing index. Finally, September’s job report will be released on Friday and will capture all the market’s attention as traders try to assess the likely timing of a first rate hike after Federal Reserve officials made very clear they are still committed to raising rates this year.
In Asia this morning, the USD consolidated previous gains in thin market conditions as Taiwan, Hong Kong and South Korea are closed due to public holiday. Data from China this morning showed that industrial profit contracted 8.8%y/y in August after falling 2.9% in the previous month. The Shanghai Composite is up 0.10% while its tech-heavy counterpart, the Shenzhen Composite is also trading in positive territory, up 1.86%.
Japanese shares continue to head lower, unable to reverse negative momentum. The Nikkei is down 1.32%, while the Topix index fell 1.04%. In the FX market, USD/JPY moved slightly lower in Tokyo but remained in its 118.61-121.75 range. Similarly, AUD/USD was treading water around 0.7020. The Aussie will find support at 0.6986 (low from September 6th), while a resistance can be found at 0.7440 (high from August 11th).
In Europe, futures are pointing towards a negative opening with the Footsie down 0.44%, the CAC 40 down 0.78%, the DAX down -0.87% and the SMI down -1.03%. EUR/USD is approaching a key area as the 50dma is about to cross the 200dma to the upside. On the downside, a support can be found at 1.1087 (low from September 3rd), while on the upside, the closest resistance lies at 1.1296 (high from September 24th).
Besides economic data from the US, traders will be watching trade balance retail sales from Sweden; consumer confidence and business confidence from Italy; capacity utilization from Turkey; federal total debt and weekly trade balance from Brazil