EURUSD, Daily
Yesterday’s slight upward bias accelerated a bit during the New York session but the pair has not been move beyond the 1.1208 – 1.1332 area which I suggested will limit the upside. Currently EURUSD is trading near a pivotal resistance at 1.1320 and has reacted lower from just below the resistance level. After edging higher for a few days the pair is now taking a breather and moving sideways. Significant daily support and resistance levels are: 1.1214 and 1.1334. Intraday support and resistance levels are at 1.1244 and 1.1320.
ECB’s Coere: Growth too weak to boost jobs. The Executive board member said ECB bond purchases will continue as long as necessary, as growth remains too weak to create sufficient jobs. In the text of a speech published on the ECB website, Coeure said France still has some way to go on growth and that he sees “room for manoeuvre” on Greece once trust is restored.
Italian refinancing costs fall. Italy sold EUR 4 bln of 2022 bonds with a coupon of 1.45% at an average yield of 1.37%, down from 1.60% at the previous auction on July 13. It also sold EUR 1.5 bln of 2046 bonds with a coupon of 3.25% at an average yield of 2.96%, down from 3.24% in July. Finally EUR 2.25 bln of 2018 bonds with a coupon of 0.25% were sold at an average yield of 0.24%.
The BoE left policy unchanged as widely expected and the minutes, released at the same time, showed an 8-1 majority in favour of steady policy, with McCafferty continuing his dissent in favour of a rate hike. However, while Sterling and yields spiked in the wake of the initial announcement, indicating lingering hopes for a more dovish statement and a reversal to a unanimous vote, yields quickly headed south again, as the statement indicated that the tightening bias is being eroded by rising concerns about the global growth outlook. So while the tightening bias remains intact for now, the BoE, is effectively taking a wait and see stance. Expectations of a dovish BoE statement were based on mixed confidence data and rising concerns about the global growth outlook. The BoE’s minutes also noted the dip in the Markit/CIPS composite PMI for August to the lowest level since May 2013. However, while bank staff lowered their estimate of Q3 GDP growth to 0.6% from 0.7%, the minutes noted that “the composite expectations index from the Markit/CIPS surveys had been steady, retail sales indicators had remained solid and consumer confidence had risen a little in August from already high levels”. In addition “the RICS survey had suggested a supportive balance of demand versus supply, and mortgage approvals in July had been a little stronger than expected”.
US reports revealed a disappointing round of July wholesale trade figures yesterday that trimmed our Q2 GDP growth estimate back to an unrevised 3.7%, though we still assume 3.0% GDP growth in Q3. The August trade price report revealed huge export price declines, with big drops for both the commodity and core export and import aggregates that were reminiscent of the plunge back in January in the face of a dollar pop, oil price declines, and a weak global economy. As such, we see little potential for improvement in the monthly trade deficits despite lower oil prices given weak export valuations. We did see a welcome 6k initial claims drop to a lean 275k, though we expect a restrained 205k September nonfarm payroll rise as the inventory overhang and factory sector restraint continues to put pressure on the economy.
Currency Movers Charts
Money has been flowing out of CHF today. EURCHF clocked a new post-January high of 1.0988 in early European trade. A steadier tone in global stock markets this week has been conducive of CHF declines. Swiss policymakers have also been successful in undermining the Swiss currency’s traditional status as a safe haven, with deeply negative deposit rates having caused a steady drip feed of yield-searching Swiss fund outflows.
USDCHF is trading near the upper daily Bollinger Bands after rallying for three weeks. EURCHF has broken out of a sideways move and is currently challenging the 50 week SMA. AUDCHF is in a down trend in daily and is currently struggling with a resistance at 0.6930. CHFJPY is likewise in a daily downtrend and has reacted lower today after a two day contra trend rally.
Significant daily support and resistance levels for these pairs are:
Main Macro Events Today
German August HICP inflation was confirmed at 0.1% y/y, in line with expectations and the preliminary reading. National CPI was confirmed at 0.2% y/y and the breakdown, which was released for the first time, confirmed that lower energy prices are the main reason behind the low headline rates. Prices for light heating oil dropped 6.2% m/m and -27.6% y/y and petrol prices were down 4.2% m/m and 9.5% y/y, with CPI excluding household energy and petrol actually standing at 1.1% y/y in August, up from 1.0% y/y in July. This is still firmly below the ECB’s 2% limit for price stability, but with German labour costs rising markedly despite relatively muted productivity growth, underlying trends are picking up, despite the fresh drop in HICP.
US Michigan Consumer Sentiment: The first release on Michigan Sentiment is out on Friday and is expected to decline to 91.5 (median 94.0) from 91.9 in August. The already released September IBD/TIPP poll declined to 46.9 from 48.1 in July. There is heightened downside risk to the release from recent market volatility.
US PPI: August PPI is out Friday and should reveal a 0.1% (median -0.1%) decline for the headline with the core index up 0.1% (median 0.1%). This follows respective July figures of 0.2% for the headline and 0.3% for the core. After some rebound in May and June oil prices resumed their decline in July and August which could weigh on the release.
