Daily Forex Market overview by IFC Markets

[Akriti]

Greenback Appreciates on Yellen, FED Minutes and Hopes of Political Break Through

The greenback was gaining ground across the board against its major counterparties after Janet Yellen was nominated as the next Fed Chairman, coupled by Fed Minutes of the 17-18 September meeting and eventually there are some chances for short term deal on debt limit to avoid default. The US dollar index advanced as high as 80.55 making its biggest corrective move after a month of declines.

To further look into the key drivers of FX market, we firstly consider the greenback appreciated due to uncertainty ruled out about who would succeed Ben Bernanke, despite that Janet Yellen is perceived as a dove among market participants,

Secondly, the release of the minutes showed that FOMC members talked a lot about moderating asset purchases, with some suggesting tapering by a small amount to signal that Fed moves cautiously. Other members suggested tapering treasury purchases only and keeping the pace of $40B MBS purchases per month to maintain support on housing sector, eventually FOMC members voted to hold the program unchanged. Only Esther L. George voted against holding asset purchases at $85B, supporting tapering. Lastly, it was revealed that most members expect asset tapering to begin in 2013, backing greenback.

Thirdly, it appears that Democrats and Republicans could agree on a shot term increase for the debt ceiling, to give more time for talks about fiscal issues. At the same time Obama invited lawmakers to the White House to resolve government shutdown. Earlier on Thursday risk appetite recovered slightly on hopes for ending US political impasse with last night US stock indices turning positive before closing.

Elsewhere, the EURUSD dipped to support at 1.3486 and is now recovering back to 1.3500, the GBPUSD softened to support at 1.5920 and remains steady slightly above that level ahead of BOE decision, no change is expected. The USDJPY breached resistance at 97.46 and climbed to 97.82 limited by falling trend line as recent stronger Japanese data improved risk sentiment and thus weakened Yen.

Lastly, the Aussie against the US dollar dropped to 0.9388 as the greenback strengthened but earlier today release of unemployment rate unexpectedly falling to 5.6% supported the pair which was lastly seen approaching 0.9420.

 

[Akriti]

Failure to Break Political Gridlock Raises Risk of US Default, Nearing Deadline of Oct. 17

Risk appetite is fading as US lawmakers failed to agree on Saturday on extending the upper limit of the US debt above $16.7T. Christine Lagarde, head of IMF warned for a “massive disruption” to the global financial markets and real economy if the borrowing limit is not raised before the 17th of October.

On Friday, market participants saw White House meeting and talks over a short-term deal optimistically with global indices rising substantially however as talks failed during the weekend risk sentiment weighed. The S&P/ASX 200 declined by 0.44% while NIKKEI 225 is closed today on Health Sports Day. Moreover, the Senate and the House are still going to meet today on Columbus Day and US is on holiday, however hopes for resolution are weak amid Republicans have the majority of votes in the House and their conservatives are not willing to make any concessions to Barack Obama.

The greenback lost against its major counterparties on FX market open this week but in overall we would expect demand for the US dollar to increase as the risk averse deepens before Oct.17. However, failure to raise debt limit until Oct.17 would bring decisions to downgrade US credit outlook by major credit rating agencies and perhaps biggest creditors of USA would attempt to sell US assets and abandon US dollar reserves, setting a great selling pressure on the US dollar. Earlier today the US dollar index plunged slightly near support at 80.21 and is currently consolidating there.

The Japanese Yen strengthened mildly contra US dollar, with the USDJPY falling to support at 98.18 as investors are seeking a safer place for their money. At the same time despite falling Chinese exports by -0.3% while was expected to increase by 5.5%, decreasing Trade surplus to $15.21B for September from $28.50 the previous month, the Aussie opposed to US dollar dipped at 0.9432 at the open but then soared to 0.9472. TheAUDUSD holds well in 0.9485/0.9432 consolidation zone and we do not expect any break out today.

Looking ahead, we do not expect much of volatility today due to low volume as Japan , USA and Canada are on bank holiday ahead of US earnings season beginning tomorrow. Eyes are again watching US lawmaker’s talks over US shut down and borrowing limit, we are concerned about failure to break through political deadlock and we are now expecting a last minute deal on Thursday. Moreover, as we start the 3rd week of US government shut down we are also now expecting a more than 0.3% negative effect on the annualized GDP.

 

[Akriti]

Optimism Returns on Possible Debt Deal on Tuesday, Aussie Gains

Hopes that US policymakers get closer to a political break through and that has improved market participants’ optimism leading risk appetite higher. US equities eventually closed in positive light after beginning in negative territory, with S&P 500 advancing by 0.41%, Dow Jones Industrial increasing by 0.42% and NASDAQ gaining by 0.62%. Asian shares followed as NIKKEI 225 was by 0.26% higher and Hang Seng climbed by 0.38%.

Optimism among investors grew substantially yesterday after Harry Reid, a Senate Democrat majority leader and its Republican counterparty Mitch McConnel said that on Tuesday a bipartisan deal may be announced that would extend US debt ceiling and fund government budget. What is discussed for a short term solution is that federal government would be funded until January 15 2014 and borrowing limit would be increased until February 15. If that is the case then the real political impasse would just postponed for some months.

The Aussie against the greenback was well underpinned after the announcement that a deal on debt limit negotiation may come on Tuesday. The latter was coupled by RBA minutes of the October 1st meeting sounding slightly more hawkish than traders estimated as RBA does seem willing to reduce further the key rate. The AUDUSD climbed above yesterday resistance at 0.9485 to a more than a 3-month peak at 0.9549, we expect that further improvement of the risk sentiment is likely to raise the exchange rate towards 0.9660.

Elsewhere, the US dollar contra the Japanese Yen climbed from support at 98.08 to resistance at 98.68 underpinned by improved risk sentiment and is now getting softer. The same happened with the USDCHF, as the US policymakers said that they approach a deal for US debt ceiling the pair drew support line at 0.9065 and advanced to resistance at 0.9113.

On the data front, UK consumer price index is eyed by market participants, likely to impact GBPUSD. The British pound against the greenback has been fluctuating in 1.6016/1.5913 tight range in the recent term. In technical terms the pair formed a reversal pattern, thus chances are favoring downside.

 

[Akriti]

All Eyes on Last Chance to Break Through US Political Impasse

There has been no progress on Tuesday regarding US debt ceiling impasse, contrary to what investors were hoping. In addition, Fitch rating agency placed the United States triple A rating on watch negative. Earlier, Empire Manufacturing dropped to 1.5 for October, while was projected at 8.2 and was down compared to 6.3 figure in September, indicating New York manufacturers confidence has weakened after a more than a 2-week government shut down. However, hopes persist in financial markets that a deal would be concluded on the last day before 17 of October when US likely will not be able to borrow to meet its obligations.

US stocks closed in red color as traders were disappointed by failure to reach an agreement on lifting borrowing limit and funding government that is closed for a third week now. The S&P 500 declined by 0.71% to 1,698, Dow Jones lost 133.25 points to end at 15,168 and NASDAQ dropped by 0.56%. Asian stocks followed the negative path further weighed by Fitch placing US to negative watch. Shanghai Composite was down by 2.10% and Hang Seng declined by 0.77% while NIKKEI 225 was up by 0.18% contrary to overall bias.

The US dollar index trimmed during US session the most of its hardly gained ground on European session by falling from cap at 80.67 to 80.35. In general we saw the US dollar retreating against safer currencies like Japanese Yen and Swiss franc during the US session with the USDJPY returning to support at 98.08 and USDCHF falling back to 0.9120 after drawing a resistance line at 0.9170. We would expect a last minute deal to be sealed, otherwise we don’t want to think about the global financial implications. Last two weeks of shut down harmed US economy growth by more than 0.4% and thus FED is likely to keep unchanged asset purchases setting pressure on the greenback . Also, last minute lift of the debt limit may bring a US downgrade, therefore over the medium term we would expect a weaker US dollar.

Concerning European currencies, the Euro contra the greenback took advantage of the disappointment over the US lawmakers’ failure to agree and recovered as high as 1.3534 before extending into a consolidation momentum. Moreover, the Euro was also underpinned by stronger than expected German ZEW economic sentiment indicator. The GBPUSD remains steady in 1.6016/1.5913 tight sideways zone ahead of employment data today.

 

[Akriti]

US Default Avoided for Now, US dollar Weakens after Political Crisis

Senate passed yesterday a shot-term deal by 81 votes for and 18 against, to end partial government closure and safe the biggest economy from debt default. US House also approved the agreement by 285-144 votes. However, that is short-term plan and there are chances for the political impasse risk to return soon in the markets as the government is funded until January 15 2014 and borrowing limit is raised until February 7 2014.

Risk appetite improved during US session with US equities closing in green, the S&P 500 gained 1.38%, Dow Jones industrial Average was up by 1.36% to 15,373.83 and NASDAQ advanced by 1.20%. Asian equities followed with the NIKKEI 225 climbing by 0.83% to 14,586.51 and S&P/ASX 200 rose by 0.38%.

FX investors seem to be expecting this outcome on US fiscal negotiations as the FX currency pairs did not react sharply. The USDJPY jumped as high as 99.00 while we have been expecting a more upside movement, though then dipped back to 98.50. The limited bullish reaction could be also due to the short-term characteristic of the plan agreed between officials.

In addition, there is growing speculation now that the Fed would most likely start asset tapering from mid-2014 instead by the end of 2013 that has been previously anticipated. Therefore, that has increased selling pressure on the greenback which is also weighed by the possibility that the biggest US creditors(China and Japan) likely to limit their investments in US Treasuries, seeking for opportunities in other nations. Recent Washington events revealed a deep political risk on financial markets. Therefore, the US dollar index dropped from 80.53 to 80.22 in recent trading as the greenback has been weakening against its major peers.

The USDCAD fell sharply from cap at 1.0415 and breached support at 1.0330 after the end of US lawmakers’ discussions, forming a reversal pattern in technical terms. We would expect more downside potential in the following sessions since we consider the last bullish attempt a corrective wave because it rose exactly at 61.8% of 1.0558 to 1.0181, at 1.0415.

 

[Akriti]

US Employment Report on Oct.22, Currencies Enter Steady Mode

The US dollar has been losing broadly against its major counterparties during yesterday session despite that a fiscal deal was concluded avoiding default. The greenback is under heavy selling pressure due to the short-term postpone of the political impasse since lawmakers would have to face it again early in 2014. US treasury yields reduced as the default risk removed, all the maturities from 1 month to 30 year have seen their yields falling on Thursday. Equities were on the upside with S&P 500 advancing by 0.67%, NASDAQ gaining 0.62%, Dow Jones was flat due to lower revenue for Goldman Sachs.

Main drivers of the FX market at the moment are the Non-Farm Payrolls and the coming meeting of the Federal Reserve. The US Labor Department opened yesterday after 2 weeks of closure and decided to announce the September employment report on October 22, Tuesday, the CPI on Oct.30 and October NFP on Nov.8 delaying it for one week. Additionally, the Fed is not likely to reduce its asset purchases in 2013 and with this political impasse going on the quantitative easing is likely to stay unchanged for a considerable time.

As investors were digesting the above mentioned drivers the US dollar index dropped sharply from 80.67 to support at 79.60, where downside was contained. We saw a short-term correction around that support and we would expect prices to attempt further lows although we are cautious ahead of NFP report, minimizing our risk/reward ratio.

The AUDUSD was well underpinned by greenback’s weakness as well as by that the Fed is not going to reduce asset purchases soon coupled by Chinese economy expanding in 3rd quarter by 2.2%, more than projected 2.1% and greater than previous quarter growth of 1.9%. The currency pair advanced as high as 0.9643 making a slight correction as traders were collecting profits. NFP and overbought indicators induce as no to bet further on the upside, instead we would expect sideways extension until Tuesday.

 

[Akriti]

Risk Sentiment Remains Strong, Most Currency Pairs Steady Ahead of NFP

Concerns over the economic cost of the U.S government shutdown still weigh on the US dollar which inched to a more than 8-month low at 79.45 late on Friday session but earlier today recovered slightly to 79.69. The greenback collapsed after an eventful week that brought biggest economy to default brinkmanship and now is looking ahead for the September employment data, released tomorrow because they were postponed due to fiscal impasse.

At the same time, risk appetite gets stronger as Federal Reserve chances for tapering are fading even for early in 2014 and that was coupled by upbeat earnings report with biggest surprise up to now the Google earnings. Today we look ahead for McDonald’s (S-MCD) earnings release with EPS consensus standing at $1.51. Asset tapering would also greatly depend on tomorrow’s NFP report, market participants are expecting a 180K increase during September.

In Asian trading today NIKKEI 225 rose by 0.91% to 14,693.57, Hang Seng is advancing by 0.53% and S&P/ASX 200 climbed by 0.57%. That has underpinned Australian dollar trading against the greenback to reach cap at 0.9677 and stay close to that early on Monday. The currency pair remains in strong upside formation and its intraday bias seem bullish thus we could see an upside breakout and continuation of the trend.

Elsewhere, the safer Japanese yen has been weakening in the last days of trading due to the improving risk sentiment also the Yen was weighed by more than estimated Trade Deficit widening in September. As a result we saw the USDJPY trading in sideways mostly between 98.16/97.58. Range trading characterizes other currency pairs as well due to traders looking towards the major NFP announcement on Tuesday. The EURUSD is fluctuating near its 10-month peak between 1.3701/1.3656 and the GBPUSD is consolidating in 1.6224/1.6142.

 

[Akriti]

US Sep. Employment Report Looms, Major Currency Pairs in Consolidation

Major currency pairs go into consolidation mode ahead of September Non-Farm Payrolls and market participants speculate over the number the report would reveal. Consensus stands at 180K increase in employment, slightly above the August reading at 169K while the unemployment rate is anticipated to remain unchanged at 7.3%. On the 1st of October the ADP Employment report registered an increase from a downward revised figure at 159K in August to 166K in Sep. coupled by ISM Employment report increasing to 55.4 in Sep. from 53.3 in August, thus we expect this trend to continue over the NFP as well.

Furthermore, in case of a weaker than projected NFP we would expect to see a greater harm on the US dollar than a benefit by stronger than projected reading. That is because traders have already priced in a delay in asset tapering initiation but that is not guaranteed without improving figures on employment and for jobless rate to hold its downward move. The US dollar index has been smashed in recent trading, falling to 79.46, as the 16-day government shutdown would take a toll on biggest economy 2013 growth of around 0.4%

We are expecting employment report with great interest as well, although we prefer to avoid projections we can make possible scenarios. Firstly, we could see a conflicting result should the NFP reading be significantly below estimates because that could have a negative impact on risk sentiment initially. However as traders realize that a weaker report would further delay Fed asset purchases reduction, risk appetite would most probably recover and then improve. In the latter case, we consider USDJPY could dip below 98.00 initially as the greenback would weaken and the would strengthen but then the pair could enter in sideways. The AUDUSD could be a good opportunity to buy because is likely to breach cap at 0.9677 and continue all the way up to 0.99.

Nevertheless, should the reading be well above expectations US dollar would strengthen across the board and that would further continue as speculation would be triggered over asset tapering likely in early 2014. Being bearish on AUDUSD could be a good strategy in that case as well as bearish on EURUSD could be proved profitable. Lastly in case of not surprises current trends in the FX market are probably going to continue.

 

[Akriti]

Euro Remains Bullish Against USD, UK GDP Ahead

The common currency maintained its ground overnight against the US dollar near resistance at 1.3821, pushing to continue it’s up trend. Euro-zone initial Manufacturing PMI reports for October were below expectations although still above previous readings while Services PMI has disappointed projections and failed previous month figures as well. Despite that the EURUSD remains mildly bullish, partly underpinned by positive quarterly Spanish GDP growth for the first time after 2-years.

Furthermore, the greenback is still under selling pressure due to concerns over the 2013 US economic growth amid 16-day shutdown as well as on asset tapering moved to March 2014. Pressure intensified yesterday after US Jobless Claims stood at 350K the previous week above estimates of 343K, coupled by a weaker expansion than projected for Flash Manufacturing PMI. All that held the US dollar index at key support zone around 79 just a step away from 15-month low that could open the way for a new downside wave. In our opinion given the technical importance of the support area around 79 we would expect some consolidation there.

During Asian session Japan released its inflation with the National CPI on annual terms rising to 1.1% up from 0.9% and beating estimates also at 0.9%, indicating that aggressive monetary policy is achieving its target and further easing steps are getting less likely. National CPI excluding food and energy stood at 0.0% up from previous at -0.1% and Tokyo CPI for October rose to 0.6% from previous month at 0.5%. As a result the Japanese yen strengthened with the USDJPY inching below 97.00 suggesting the downtrend persists, increasing chances for lower values like support at 96.55.

Elsewhere, the USDCAD established a new positive structure by breaching recently created reversal pattern’s neckline at 1.0418, due to less hawkish monetary policy report by BoC still weighing on the Canadian dollar. The GBPUSD holds tight slightly below 1.6259 ready to advance to 10-month high by a trigger event. Looking ahead, eyes focus on German Ifo, British preliminary GDP and later on we expect Durable Goods Orders.