DAILY MARKET COMMENTARY
11 October 2011 – 8:00 GMT
Tuesday
____________________________________________________________________
Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
_____________________________________________________________________
FUNDAMENTAL ANALYSIS at 0800 GMT
USD
Risk appetite has been stable in Asia, mainly in reaction to improving sentiment about the EU debt crisis, better than expected macro data, and after news that China's government plans to boost its stakes in the country's biggest banks. In Europe, Greek Finance Minister Venizelos said yesterday that the troika has concluded discussions. An official statement in which the troika inspectors will detail whether they believe that Greece has made enough progress to receive its next aid tranche will now be released earlier than expected, and crucially, ahead of the next EU summit.
On the data front consumer confidence in Japan and business confidence in Australia rose in September. In Germany, exports in August rose to record levels, suggesting that business activity in the Eurozone's largest member state will not slump, dampening the notion that inflation expectations could fall considerably from current levels. Alongside better risk sentiment, still stretched short positioning suggests EURUSD remains a buy on dips for now. The EU summit originally planned for Oct. 17 has now been postponed to Oct. 23. Most Asian stock market indices are trading in the black, with the Nikkei up by 2.11%. EURUSD traded 1.3617-1.3654 and USDJPY 76.63-76.76. Ahead today, investors will focused on Slovakia's parliamentary vote on whether to ratify enhancements to the EFSF. We expect them to approve enhancements.
EUR
With the EFSF ratification process in all 17 Eurozone countries almost complete, attention now turns to the Slovakian parliament which is scheduled to hold a vote on ratification some time after 1100GMT on Tuesday. A junior party in the four-party coalition government has as recently as Monday night, pledged to vote down the Bill. Without the full support of government parties, opposition votes would be needed to secure safe passage of the Bill.
Greece's Finance Minister Venizelos said discussions with the troika on plans for 2011 and 2012 have concluded, and negotiations are now focused on 2013 and 2014. Reuters, citing an unnamed source, said that the EU, IMF and ECB inspectors are expected to wrap up Greek aid talks on Monday and issue a statement by Tuesday.
Greece's Deputy Prime Minister Pangalos said there is no possibility of anyone leaving the Eurozone or being kicked out. He added that Chinese investors are currently looking into the possibility of buying state assets.
In Germany, exports in August rose to record levels, suggesting that business activity in the Eurozone's largest member state will not slump, dampening the notion that inflation expectations could fall considerably from current levels. Alongside better risk sentiment, still stretched short positioning suggests EURUSD remains a buy on dips for now.
AUD
Business confidence in September rose to -2 from -9 in August, suggesting that the lower AUD and still firm demand conditions helped ease the corporate sector's worries about growth prospects. The improvement in confidence suggests that corporates will be more willing to hire, especially as manufacturing activity is expected to rise again. This in combination with stable risk sentiment suggests that AUDUSD remains a buy on dips for now.
A. White
Analyst at Fibosignals.com
DISCLAIMER: Fibosignals.com’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. Fibosignals.com assumes no responsibility or liability from gains or losses incurred by the information herein contained. Opinions, conclusions and other information expressed in this message are not given or endorsed by Fibosignals.com unless otherwise indicated by an authorized representative.
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Tuesday, October 11, 2011
Monday, October 10, 2011
10th of October 2011 - Technical Forex Market Overview
DAILY MARKET COMMENTARY
10 October 2011 – 8:00 GMT
Monday
_____________________________________________________________________
Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
_____________________________________________________________________
TECHNICAL DATA
EURUSD BEARISH Support lies at 1.3242, a break below which would open 1.3146. Resistance is at 1.3601.
USDJPY NEUTRAL Initial resistance is at 77.76, top of the bear channel drawn off April 7 high ahead of 77.86. Support lies at 76.11.
GBPUSD BEARISH As long as resistance at 1.5716 holds, there is scope for a move towards 1.5423 and 1.5272.
USDCHF BULLISH Rise through 0.9340 would expose 0.9401, a Fibonacci level. Near-term support lies at 0.9078.
AUDUSD BEARISH Decline through 0.9622 would open 0.9488 next. Resistance is at 0.9986.
USDCAD BULLISH Initial resistance is at 1.0483, a move above which would open 1.0572. Support lies at 1.0235 ahead of 1.0144.
EURCHF BULLISH Break above 1.2469 would open the way for 1.2646. Support lies at 1.2218.
EURGBP BEARISH Key support lies at 0.8530, a break here would open the way towards 0.8430. Resistance is at 0.8740.
EURJPY BEARISH Move below 101.62 would expose the key low at 100.76. Resistance is at 104.96.
A. White
Analyst at Fibosignals.com
DISCLAIMER: Fibosignals.com’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. Fibosignals.com assumes no responsibility or liability from gains or losses incurred by the information herein contained. Opinions, conclusions and other information expressed in this message are not given or endorsed by Fibosignals.com unless otherwise indicated by an authorized representative.
10 October 2011 – 8:00 GMT
Monday
_____________________________________________________________________
Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
_____________________________________________________________________
TECHNICAL DATA
EURUSD BEARISH Support lies at 1.3242, a break below which would open 1.3146. Resistance is at 1.3601.
USDJPY NEUTRAL Initial resistance is at 77.76, top of the bear channel drawn off April 7 high ahead of 77.86. Support lies at 76.11.
GBPUSD BEARISH As long as resistance at 1.5716 holds, there is scope for a move towards 1.5423 and 1.5272.
USDCHF BULLISH Rise through 0.9340 would expose 0.9401, a Fibonacci level. Near-term support lies at 0.9078.
AUDUSD BEARISH Decline through 0.9622 would open 0.9488 next. Resistance is at 0.9986.
USDCAD BULLISH Initial resistance is at 1.0483, a move above which would open 1.0572. Support lies at 1.0235 ahead of 1.0144.
EURCHF BULLISH Break above 1.2469 would open the way for 1.2646. Support lies at 1.2218.
EURGBP BEARISH Key support lies at 0.8530, a break here would open the way towards 0.8430. Resistance is at 0.8740.
EURJPY BEARISH Move below 101.62 would expose the key low at 100.76. Resistance is at 104.96.
A. White
Analyst at Fibosignals.com
DISCLAIMER: Fibosignals.com’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. Fibosignals.com assumes no responsibility or liability from gains or losses incurred by the information herein contained. Opinions, conclusions and other information expressed in this message are not given or endorsed by Fibosignals.com unless otherwise indicated by an authorized representative.
10th of October 2011 - Fundamental Forex Market Overview
DAILY MARKET COMMENTARY
10 October 2011 – 8:00 GMT
Monday
____________________________________________________________________
Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
_____________________________________________________________________
FUNDAMENTAL ANALYSIS at 0800 GMT
USD
Risk sentiment improved in Asia on continued hopes of a more targeted policymaker response to the Eurozone debt crisis. Investors' growth expectations have also started to improve after Friday's better-than-expected US payrolls release. German Chancellor Merkel and French President Sarkozy met on Sunday to seek a compromise on a bank recapitalization plan and generally discuss a more efficient response to the European debt crisis. Both leaders indicated they are determined to do everything necessary to ensure the recapitalization of their banks, something Sarkozy had consistently opposed previously. Although no details were given, they both confirmed that wide-reaching action will be announced by the end of October, ahead of the G20 meeting. The convergence in opinion and the fact that they agreed on a self-imposed deadline for a common crisis response suggests that a major announcement is likely in the next couple of weeks. These developments should be supportive of both risk sentiment and the euro.
US payrolls surprised positively on Friday while the unemployment rate was steady at 9.1%. This suggests that the Fed will remain cautious on labour market conditions and that rate expectations will therefore stay capped. Fitch downgraded Italy and Spain on Friday, but given the limited likelihood of a near-term move by S&P and the fact that Fitch was partly following up, the impact on the euro should is not lasting. Finally, Dexia's board of directors accepted a rescue plan which was prepared by France's and Belgium's governments. EURUSD traded 1.3346-1.3478 and USDJPY 76.70-76.85. US stock futures are trading in the black, with S&P futures up by 1.2%.
EUR
On Sunday, German Chancellor Merkel and French President Sarkozy gave a joint press conference in Berlin. They said their ambition is to agree a plan for stabilising the Eurozone by the end of October and that they both agree on the issue of recapitalizing the banking sector. This suggests a major convergence in opinion for recapitalizing the banking sector, something Sarkozy had consistently opposed previously. They self-imposed a deadline for providing a comprehensive and wide-reaching plan for bank recapitalization and for responding to the crisis. Such a plan will be announced by end of October, and most crucially ahead of the next G20 meeting. The convergence in opinion in combination with the fact they both agreed on a self-imposed deadline confirms officials' seriousness and signals that indeed some major announcement should be expected during the next couple of weeks. Under such conditions both risk and the euro will likely stay supported.
Thomsen, the IMF's Mission Chief in Greece, said Greece is "at a crossroads" and that the program "will not work if the authorities do not take the path that requires much stricter structural reforms than those that we have seen so far." He noted too that "political and social fatigue is growing."
Greece's representative at the IMF, Panagiotis Roumelitis, said that Greece would need more funding than that already envisaged under the second proposed rescue of Greece agreed on July 21. He said either the EUR 109 bn proposed rescue would have to be increased, or the financing gap would have to be closed "through a restructuring of private debt". He said the IMF favoured the latter option.
Fitch first downgraded Italy one notch to A+, outlook negative. They also downgraded Spain 2 notches to AA-, outlook negative. However, with the probability for S&P to act in the short-term too rather limited and part of Fitch's rating action a follow up its impact on the euro is not lasting.
GBP
On Sunday, Bank of England MPC member Weale indicated that he supported Thursday's decision to embark on another round of QE (the full voting breakdown will not be known until the minutes are released on Oct 19). This marks quite a turnaround in thinking given Weale had, until recently, cast his vote in favour of rate hikes, only dropping his call for this at the August meeting. Like Governor King on Thursday, Weale also raised the possibility that further rounds of QE could follow - he said "there is quite a lot of scope for further quantitative easing" noting that the stock of issued Gilts was greater now than it had been when the Bank first embarked on QE in March 2009.
A. White
Analyst at Fibosignals.com
DISCLAIMER: Fibosignals.com’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. Fibosignals.com assumes no responsibility or liability from gains or losses incurred by the information herein contained. Opinions, conclusions and other information expressed in this message are not given or endorsed by Fibosignals.com unless otherwise indicated by an authorized representative.
10 October 2011 – 8:00 GMT
Monday
____________________________________________________________________
Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
_____________________________________________________________________
FUNDAMENTAL ANALYSIS at 0800 GMT
USD
Risk sentiment improved in Asia on continued hopes of a more targeted policymaker response to the Eurozone debt crisis. Investors' growth expectations have also started to improve after Friday's better-than-expected US payrolls release. German Chancellor Merkel and French President Sarkozy met on Sunday to seek a compromise on a bank recapitalization plan and generally discuss a more efficient response to the European debt crisis. Both leaders indicated they are determined to do everything necessary to ensure the recapitalization of their banks, something Sarkozy had consistently opposed previously. Although no details were given, they both confirmed that wide-reaching action will be announced by the end of October, ahead of the G20 meeting. The convergence in opinion and the fact that they agreed on a self-imposed deadline for a common crisis response suggests that a major announcement is likely in the next couple of weeks. These developments should be supportive of both risk sentiment and the euro.
US payrolls surprised positively on Friday while the unemployment rate was steady at 9.1%. This suggests that the Fed will remain cautious on labour market conditions and that rate expectations will therefore stay capped. Fitch downgraded Italy and Spain on Friday, but given the limited likelihood of a near-term move by S&P and the fact that Fitch was partly following up, the impact on the euro should is not lasting. Finally, Dexia's board of directors accepted a rescue plan which was prepared by France's and Belgium's governments. EURUSD traded 1.3346-1.3478 and USDJPY 76.70-76.85. US stock futures are trading in the black, with S&P futures up by 1.2%.
EUR
On Sunday, German Chancellor Merkel and French President Sarkozy gave a joint press conference in Berlin. They said their ambition is to agree a plan for stabilising the Eurozone by the end of October and that they both agree on the issue of recapitalizing the banking sector. This suggests a major convergence in opinion for recapitalizing the banking sector, something Sarkozy had consistently opposed previously. They self-imposed a deadline for providing a comprehensive and wide-reaching plan for bank recapitalization and for responding to the crisis. Such a plan will be announced by end of October, and most crucially ahead of the next G20 meeting. The convergence in opinion in combination with the fact they both agreed on a self-imposed deadline confirms officials' seriousness and signals that indeed some major announcement should be expected during the next couple of weeks. Under such conditions both risk and the euro will likely stay supported.
Thomsen, the IMF's Mission Chief in Greece, said Greece is "at a crossroads" and that the program "will not work if the authorities do not take the path that requires much stricter structural reforms than those that we have seen so far." He noted too that "political and social fatigue is growing."
Greece's representative at the IMF, Panagiotis Roumelitis, said that Greece would need more funding than that already envisaged under the second proposed rescue of Greece agreed on July 21. He said either the EUR 109 bn proposed rescue would have to be increased, or the financing gap would have to be closed "through a restructuring of private debt". He said the IMF favoured the latter option.
Fitch first downgraded Italy one notch to A+, outlook negative. They also downgraded Spain 2 notches to AA-, outlook negative. However, with the probability for S&P to act in the short-term too rather limited and part of Fitch's rating action a follow up its impact on the euro is not lasting.
GBP
On Sunday, Bank of England MPC member Weale indicated that he supported Thursday's decision to embark on another round of QE (the full voting breakdown will not be known until the minutes are released on Oct 19). This marks quite a turnaround in thinking given Weale had, until recently, cast his vote in favour of rate hikes, only dropping his call for this at the August meeting. Like Governor King on Thursday, Weale also raised the possibility that further rounds of QE could follow - he said "there is quite a lot of scope for further quantitative easing" noting that the stock of issued Gilts was greater now than it had been when the Bank first embarked on QE in March 2009.
A. White
Analyst at Fibosignals.com
DISCLAIMER: Fibosignals.com’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. Fibosignals.com assumes no responsibility or liability from gains or losses incurred by the information herein contained. Opinions, conclusions and other information expressed in this message are not given or endorsed by Fibosignals.com unless otherwise indicated by an authorized representative.
Friday, October 07, 2011
7th of October 2011 - Technical Forex Market Overview
DAILY MARKET COMMENTARY
7 October 2011 – 8:00 GMT
Friday
_____________________________________________________________________
Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
_____________________________________________________________________
TECHNICAL DATA
EURUSD BEARISH Near-term support lies at 1.3242, a break here would open 1.3146. Resistance is at 1.3601.
USDJPY NEUTRAL Resistance is at 77.58, top of the bear channel drawn off April 7 high ahead of 77.86. Key support lies at 75.95.
GBPUSD BEARISH Sell-off through 1.5328 has exposed support at 1.5192, a Fibonacci level ahead of 1.5125. Resistance is at 1.5597.
USDCHF BULLISH Resistance is at 0.9340 ahead of 0.9401. Near-term support lies at 0.9078.
AUDUSD BEARISH Focus on support at 0.9488, a break of which would expose 0.9388. Resistance is at 0.9810 ahead of 0.9986.
USDCAD BULLISH The pullback from 1.0658 is viewed as a correction. Near-term resistance is at 1.0572. Support lies at 1.0340 ahead of 1.0265.
EURCHF BULLISH A clear break above 1.2403 would signal scope for extension of gains towards 1.2646. Support lies at 1.2123.
EURGBP BEARISH Initial support is at 0.8593 ahead of 0.8530, a key low. Resistance is at 0.8740 ahead of 0.8795.
EURJPY BEARISH Clearance of 100.76 would open the way towards the psychological level of 100.00. Resistance is at 104.96.
A. White
Analyst at Fibosignals.com
DISCLAIMER: Fibosignals.com’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. Fibosignals.com assumes no responsibility or liability from gains or losses incurred by the information herein contained. Opinions, conclusions and other information expressed in this message are not given or endorsed by Fibosignals.com unless otherwise indicated by an authorized representative.
7 October 2011 – 8:00 GMT
Friday
_____________________________________________________________________
Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
_____________________________________________________________________
TECHNICAL DATA
EURUSD BEARISH Near-term support lies at 1.3242, a break here would open 1.3146. Resistance is at 1.3601.
USDJPY NEUTRAL Resistance is at 77.58, top of the bear channel drawn off April 7 high ahead of 77.86. Key support lies at 75.95.
GBPUSD BEARISH Sell-off through 1.5328 has exposed support at 1.5192, a Fibonacci level ahead of 1.5125. Resistance is at 1.5597.
USDCHF BULLISH Resistance is at 0.9340 ahead of 0.9401. Near-term support lies at 0.9078.
AUDUSD BEARISH Focus on support at 0.9488, a break of which would expose 0.9388. Resistance is at 0.9810 ahead of 0.9986.
USDCAD BULLISH The pullback from 1.0658 is viewed as a correction. Near-term resistance is at 1.0572. Support lies at 1.0340 ahead of 1.0265.
EURCHF BULLISH A clear break above 1.2403 would signal scope for extension of gains towards 1.2646. Support lies at 1.2123.
EURGBP BEARISH Initial support is at 0.8593 ahead of 0.8530, a key low. Resistance is at 0.8740 ahead of 0.8795.
EURJPY BEARISH Clearance of 100.76 would open the way towards the psychological level of 100.00. Resistance is at 104.96.
A. White
Analyst at Fibosignals.com
DISCLAIMER: Fibosignals.com’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. Fibosignals.com assumes no responsibility or liability from gains or losses incurred by the information herein contained. Opinions, conclusions and other information expressed in this message are not given or endorsed by Fibosignals.com unless otherwise indicated by an authorized representative.
7th of October 2011 - Fundamental Forex Market Overview
DAILY MARKET COMMENTARY
7 October 2011 – 8:00 GMT
Friday
____________________________________________________________________
Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
_____________________________________________________________________
FUNDAMENTAL ANALYSIS at 0800 GMT
USD
Risk sentiment improved further in Asia on signs officials are becoming more focused in tackling Europe's debt crisis and after the ECB said it will provide markets with additional liquidity. While keeping rates on hold, the ECB announced its intention to restart the covered bond purchase program and to re-instate 1y tenders to provide Eurozone banks with longer-term access to unlimited euro liquidity over the end of 2011 and of 2012. As the ECB's liquidity measures do not lead to currency debasement and President Trichet did not indicate an impending rate cut, the latest policy moves are supportive of both European stock markets and the euro. Thus yesterday's events also bolster the prospect of renewed net inflows to the Eurozone, to the benefit of the euro. Officials are also becoming increasingly focused on supporting the banking sector. German Chancellor Merkel again stressed yesterday that she takes the advice that banks need more capital very seriously and that one should not hesitate if the time comes to recapitalize them. The Bank of Japan left rates unchanged today, in line with market expectations. US stocks closed higher yesterday, with the S&P 500 up by 1.83%. In Asia the Nikkei added 1.5%. EURUSD traded 1.3404-1.3428 and USDJPY 76.62-76.76. Investor focus will now turn to the release of US non-farm payrolls.
EUR
The ECB kept rates unchanged at 1.5% and again stressed that inflation has been elevated of late while risks to the outlook are broadly balanced. At the same time Trichet again highlighted increased downside risks to growth. Altogether the rhetoric was not much more dovish than the last policy meeting, and Trichet did not indicate a rate cut at the next meeting, which will be chaired by his successor, Bank of Italy Governor Draghi. Indeed, growth momentum is likely to stabilize by the end of the year, not only on the back of seasonal factors, but also due to the high likelihood that demand conditions will improve on more constructive labour markets in large Eurozone member states such as Germany. Medium-term inflation expectations are therefore unlikely to drop considerably in the short term, supporting the notion of stable interest rates for now. Trichet highlighted that non-standard measures will be used to ease market stress.
Given the additional liquidity measures, no un-sterilized action, and stable rate expectations, European risk assets are likely also to become more attractive to foreign investors. Alongside some re-pricing of risk in the banking sector as officials take a more aggressive stance on the debt crisis, this supports the scope for renewed net inflows to the Eurozone, to the benefit of risk and the euro.
European Commission President Barroso said the Commission would propose coordinated action by member states to recapitalize banks. A consensus appears to be developing around a three-step approach whereby banks would first attempt to raise capital privately. If that fails, injections of government money could be considered. Finally recourse could also be made to the EFSF once the ratification of the July 21 agreement (which authorises the EFSF to fund bank recapitalizations) is complete.
GBP
The Bank of England left rates unchanged at 0.5% but they expanded the QE programme by GBP 75bn to GBP 275bn. According to the central bank there are severe strains in the funding market. In addition it was highlighted that the margin of slack has increased in the economy and that the deterioration in the inflation outlook made it more likely that inflation will undershoot in the medium term. The aim is to take four months to complete the planned asset purchases.
In an unusual move, Governor King was interviewed on national television and described the decision to do more QE as "pre-emptive", adding that he could not rule out doing even more QE. We note that when the Bank first embarked on QE in March 2009, a figure of GBP75 bn was also targeted initially, however further incremental increases eventually took the program size up to GBP200 bn. King denied suggestions that the QE decision raises the risk of a currency war, and also refuted the claim that the government had put pressure on the bank.
CHF
Swiss FX Reserves rose to CHF 282.352bn in September from 253.4bn in August. As this is the first release that covered data till end of September it is the first indication of intervention costs. However, data is still distorted as a large volume of FX swaps have yet to mature.
CPI in September rose 0.5% y/y, slightly above market expectations for a 0.3% rise. However the latest data does not impact the SNB's stance with respect to keeping the price floor intact. This is especially true as most recent releases of forward looking indicators such as the Kof leading indicator or PMIs are pointing to further weakening growth momentum and hence muted price risk.
JPY
The BoJ kept monetary policy unchanged and did not announce any new measures to support the economy. The central bank expects the economy to resume moderate growth. It also said that overseas growth is expected to slow, which may pose additional risks to domestic growth conditions.
A. White
Analyst at Fibosignals.com
DISCLAIMER: Fibosignals.com’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. Fibosignals.com assumes no responsibility or liability from gains or losses incurred by the information herein contained. Opinions, conclusions and other information expressed in this message are not given or endorsed by Fibosignals.com unless otherwise indicated by an authorized representative.
7 October 2011 – 8:00 GMT
Friday
____________________________________________________________________
Market Analysis Desk
Foreign Exchange Research: www.fibosignals.com/5585/resources.html
_____________________________________________________________________
FUNDAMENTAL ANALYSIS at 0800 GMT
USD
Risk sentiment improved further in Asia on signs officials are becoming more focused in tackling Europe's debt crisis and after the ECB said it will provide markets with additional liquidity. While keeping rates on hold, the ECB announced its intention to restart the covered bond purchase program and to re-instate 1y tenders to provide Eurozone banks with longer-term access to unlimited euro liquidity over the end of 2011 and of 2012. As the ECB's liquidity measures do not lead to currency debasement and President Trichet did not indicate an impending rate cut, the latest policy moves are supportive of both European stock markets and the euro. Thus yesterday's events also bolster the prospect of renewed net inflows to the Eurozone, to the benefit of the euro. Officials are also becoming increasingly focused on supporting the banking sector. German Chancellor Merkel again stressed yesterday that she takes the advice that banks need more capital very seriously and that one should not hesitate if the time comes to recapitalize them. The Bank of Japan left rates unchanged today, in line with market expectations. US stocks closed higher yesterday, with the S&P 500 up by 1.83%. In Asia the Nikkei added 1.5%. EURUSD traded 1.3404-1.3428 and USDJPY 76.62-76.76. Investor focus will now turn to the release of US non-farm payrolls.
EUR
The ECB kept rates unchanged at 1.5% and again stressed that inflation has been elevated of late while risks to the outlook are broadly balanced. At the same time Trichet again highlighted increased downside risks to growth. Altogether the rhetoric was not much more dovish than the last policy meeting, and Trichet did not indicate a rate cut at the next meeting, which will be chaired by his successor, Bank of Italy Governor Draghi. Indeed, growth momentum is likely to stabilize by the end of the year, not only on the back of seasonal factors, but also due to the high likelihood that demand conditions will improve on more constructive labour markets in large Eurozone member states such as Germany. Medium-term inflation expectations are therefore unlikely to drop considerably in the short term, supporting the notion of stable interest rates for now. Trichet highlighted that non-standard measures will be used to ease market stress.
Given the additional liquidity measures, no un-sterilized action, and stable rate expectations, European risk assets are likely also to become more attractive to foreign investors. Alongside some re-pricing of risk in the banking sector as officials take a more aggressive stance on the debt crisis, this supports the scope for renewed net inflows to the Eurozone, to the benefit of risk and the euro.
European Commission President Barroso said the Commission would propose coordinated action by member states to recapitalize banks. A consensus appears to be developing around a three-step approach whereby banks would first attempt to raise capital privately. If that fails, injections of government money could be considered. Finally recourse could also be made to the EFSF once the ratification of the July 21 agreement (which authorises the EFSF to fund bank recapitalizations) is complete.
GBP
The Bank of England left rates unchanged at 0.5% but they expanded the QE programme by GBP 75bn to GBP 275bn. According to the central bank there are severe strains in the funding market. In addition it was highlighted that the margin of slack has increased in the economy and that the deterioration in the inflation outlook made it more likely that inflation will undershoot in the medium term. The aim is to take four months to complete the planned asset purchases.
In an unusual move, Governor King was interviewed on national television and described the decision to do more QE as "pre-emptive", adding that he could not rule out doing even more QE. We note that when the Bank first embarked on QE in March 2009, a figure of GBP75 bn was also targeted initially, however further incremental increases eventually took the program size up to GBP200 bn. King denied suggestions that the QE decision raises the risk of a currency war, and also refuted the claim that the government had put pressure on the bank.
CHF
Swiss FX Reserves rose to CHF 282.352bn in September from 253.4bn in August. As this is the first release that covered data till end of September it is the first indication of intervention costs. However, data is still distorted as a large volume of FX swaps have yet to mature.
CPI in September rose 0.5% y/y, slightly above market expectations for a 0.3% rise. However the latest data does not impact the SNB's stance with respect to keeping the price floor intact. This is especially true as most recent releases of forward looking indicators such as the Kof leading indicator or PMIs are pointing to further weakening growth momentum and hence muted price risk.
JPY
The BoJ kept monetary policy unchanged and did not announce any new measures to support the economy. The central bank expects the economy to resume moderate growth. It also said that overseas growth is expected to slow, which may pose additional risks to domestic growth conditions.
A. White
Analyst at Fibosignals.com
DISCLAIMER: Fibosignals.com’s Daily Market Commentary is provided for informational purposes only. The information contained in these reports is gathered from reputable news sources and is not intended to be used as investment advice. Fibosignals.com assumes no responsibility or liability from gains or losses incurred by the information herein contained. Opinions, conclusions and other information expressed in this message are not given or endorsed by Fibosignals.com unless otherwise indicated by an authorized representative.
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