EURUSD, Daily
EURUSD closed yesterday below the previous day’s spinning top candle low. This is further confirmation for the bearish view that I had yesterday. Yesterday’s analysis pointed to a reversal and provided a resistance to trade against. This 1.1328 resistance worked to a pip yesterday as price moved to 1.13287 after the publication of this report yesterday. The pair has rallied to the spinning candle low in the Asian session today and reversed lower once again. EURUSD has since penetrated 4h lower Bollinger Bands (20) and trades near 50 period SMA in 4h chart. The next resistance area is at 1.1285 to 1.1300, roughly coinciding with 23.6% Fibonacci retracement at 1.1305 while next significant daily support is found at 1.1190 with 61.8% Fib level nearby at 1.1196. The 50% retracement level coincides with a daily high at 1.1230 (from 8th September) and could cause a small rally.
Several ECB officials have been voicing their opinions on the bank’s QE program. ECB’s Constancio: ECB has scope to expand QE if necessary. The ECB’s Vice President highlighted that compared to the programs introduced by Fed, BoE and BoJ, the ECB’s asset purchase program has been relatively small.ECB’s Nowotny: QE extension or expansion possible. The Austrian central bank head said in an interview with Die Presse, that the asset purchase program has had a number of positive effects while highlighting that the low inflation in the Eurozone is a big problem for the ECB. Interestingly, he didn’t blame lower oil prices, but the dramatic deterioration in the economic outlook for emerging markets, adding that the main problem isn’t so much China as countries like Brazil. ECB’s Weidmann warns cheap money doesn’t help to boost sustainable growth and production potential, but in an interview with Germany’s Sueddeutsche Zeitung, he warned again that it increasingly harbours risks also to financial stability. Weidmann was recently appointed as new head of the BIS, which in its latest annual report also warned that markets remain too reliant on central bank stimulus, in contrast to the IMF, which is calling for ever more easing measures to support world growth.
The lack of major negative surprises in today’s data keeps the FOMC on course to announce a 25 bp rate hike on Thursday. Though it remains a close call. While the Fed is mostly meeting its mandate on economic growth (we’re forecasting a 3.0% GDP growth rate for the second half of 2015) and the labor market, the renewed downturn in commodities may reduce confidence that the 2% inflation goal will be met anytime soon. And various exogenous factors, including worries over slowing growth abroad and increased volatility in the financial markets, add to the dovish, no hike case. Unfortunately the FOMC has conditioned the markets to react bearishly to hints of normalization such that there will never be a “good time” to commence liftoff. There’s been no need for the Fed to maintain its emergency policy stance all these years, and a 25 bp hike should have only limited impact, especially if policymakers continue to indicate a gradual path for the future.
US reports yesterday revealed a largely expected round of August retail sales and July business inventory figures that had no net impact on our GDP estimates of 3.0% growth in Q3 after an unrevised 3.7% figure in Q2, with real consumption growth of 3.0% in Q3 after a Q2 growth boost to 3.4% from 3.1% that was previously signaled by strong QSS data. We also saw a weak round of September Empire State figures that extended August weakness, alongside a big 0.4% August industrial production drop after a 0.9% (was 0.6%) July surge that reflected an even bigger than expected vehicle sector gyration around retooling. Today’s figures did little to alter the sales and inventory outlook, beyond reinforcing the view that factories face big headwinds from an inventory overhang and a vehicle sector drop-back after a July pop, and a petro-sector recession that’s been aggravated by further oil price declines.
Currency Movers Charts
The US Fed has started its two day meeting in which they are to decide whether to lift the interest rates from the zero level. There has been movement in AUD today. Currency has moved most against USD, EUR and GBP. AUDUSD is rallying and trying to move above 50% Fibonacci level and towards a 0.7219 resistance that coincides with a 61.8% retracement level and proximity of downward weekly regression channel. EURAUD is rolling over inside a topping formation and towards a support level at 1.5566. The pair is now trading below 1.5770 resistance. GBPAUD has reached a support provided by both 50 day SMA and the lower Bollinger Bands (20). This level is also a weekly high from six weeks ago. With this in mind and Stochastics oversold the current reversal signs in intraday resolutions should lead to a rally higher.
Significant daily support and resistance levels for these pairs are:
Main Macro Events Today
EMU final Aug HICP: The headline reading was expected to be confirmed at 0.2% y/y, but there is some risk of a downward revision, after yesterday’s weaker than expected French number. Lower energy prices are driving the annual rate down again, but the gap between the headline number and the core measure is widening. Even the latter remains far below the ECB’s 2% limit for price stability, but with the labour market starting to improve and economic heavyweight Germany posting sizeable increases in unit labour costs, underlying trends are picking up, even if energy price developments could push the headline rate back into negative territory in coming months.
Canada Manufacturing: should rise 1.0% in July after the 1.2% gain in June. A 2.2% gain in exports provides a compelling reason to forecast another solid gain in manufacturing shipments during July. An as-expected gain in shipments would provide further support for the Q3 rebound scenario, supportive of no change in BoC policy for an extended period.
US CPI: August CPI data should reveal a flat (median unchanged) headline with a 0.2% core increase. This would leave overall CPI up 0.2% y/y with the core index up 1.8% y/y. The drop in gasoline prices has weighed on price measures and we expect this to be the case in the CPI release where gasoline prices look poised to decline by 2% for the month. This effect was already visible in the month’s PPI data where we saw a flat headline for August as well.
