Daily Market Analysis by Vinson Financials

Financial New for August 07, 2015

Bank of Japan holds course

The JPY has been under pressure for some days now, particularly against the USD. The Bank of Japan's meeting did not move the FX markets during the night. As expected, not much has changed in Japan.

The BoJ continues to buy huge amounts of government bonds. So far, the markets are not interested in the fact that the quantitative and qualitative easing (QQE) does not have the desired effects.

Commerzbank suspects, "For now, any USD/JPY fluctuations will be triggered by developments on the USD side. If the US labour market report is favourable, the exchange rate might pass the threshold of 125 today."

Market Review for August 07, 2015

The Bank of Japan maintained its massive stimulus program and upbeat view of the economy, ignoring the recent weak data that clouded the prospects for hitting its 2.00% Inflation target. BOJ Governor Haruhiko Kuroda stressed that the current weakness in Japan's exports and household spending was temporary, sticking to the view the world's third largest economy continues to recover moderately. Furthermore, Kuroda acknowledged that China and other emerging market economies were slowing while he maintained the view that overseas demand will pick up as strength in advanced economies broadens out. USD/JPY is currently trading near the 124.75 area with the next resistance seen at 125.00 level.

Released during the Asian session this morning, the Australian Home Loans rose 4.4% missing the estimated 5.2% while AIG Construction Index came in at 47.1 versus the previous of 46.4. AUD/USD is currently trading near the 0.7372 area after reaching to the 0.7247 level in previous days.

Released during the early European session, the Swiss Unemployment Rate rose 3.3%, as widely expected, causing insignificant impact on the CHF, USD/CHF hit fresh four- month highs and currently is trading near the 0.9800 area.

EUR/USD spiked higher today despite the mixed economic data from Germany and France. Released from Germany, Industrial Production dropped -1.4% versus the estimated 0.3% while Trade Balance came in at 22.0B missing the estimated 23.2B. Released from France, General Budget Outcome came in at -58.5B versus the previous of -63.9B, Industrial Production dropped -0.1% missing the estimated 0.3% and Trade Balance came in at -2.7B beating the estimated -3.7B. The EUR/USD pair is currently trading near the 1.0940 area awaiting for today’s economic data from the United States.

The main focus for the day will be the United States jobs data and the Canadian jobs data. The United States Non-Farm Employment Change is expected to show 222k growth with unemployment rate unchanged at 5.3%, while average hourly earnings are expected to grow 0.2%. Today’s Job data has major importance, as it will be indication for the FOMC members to find he needed evidence for "some further improvement in labor market" for their decision for rate hike timing.

Data releases to monitor:

CAD: Building Permits, Employment Change, Unemployment Rate, Ivey PMI.

USD: Average Hourly Earnings, Non-Farm Employment Change, Unemployment Rate, Consumer Credit.

GBP: Trade Balance.

Trade Idea of the Day

CAD/JPY

Currently the pair is trading at 95.13. Traders must monitor the 95.92 resistance level and the support level of 94.10 for possible breakouts. A possible scenario would be a movement towards the 95.53 resistance level where a break may lead to the 95.80 area. An alternative scenario could be a movement towards the 94.80 support level where a break could lead to the 94.45 area.

Financial News Monday August 10, 2015

Swiss inflation to be near 0 by 2016

Over a one-year horizon, the outlook for Swiss inflation remains very weak. By 2016, Switzerland is expected to be the only G10 country with inflation still hugging zero.

"The SNB does not expect inflation to turn positive until early 2017 and it expects to keep rates at -0.75% throughout the forecast horizon (Q1 2018)", says RBC capital markets.

The ECB is expected to end QE in Sept 2016 which should allow EUR/CHF to drift back towards fair value over time.

GBP higher, but risks remain

Longer-term, there are two key risks for GBP, the UK's unsustainable current account deficit (6.2% of GDP) and the EU referendum, promised for end-2017 at the latest.

Both are manageable, however.

The current account deficit is the counterpart to the budget deficit domestically and so long as the government's fiscal strategy is credible, it should remain fundable.

"This would have been a much greater risk under other, less certain, election outcomes. When we look in detail at the EU referendum risk, we concluded the UK electorate is probably less Eurosceptic than the most recent opinion polls imply", says RBC capital markets.

In the longer term, the balance of opinion has almost always been in favour of staying in and it still is when pollsters add a qualification that the government recommends voting to stay. The long-term view on GBP is moderately constructive.

Market Review August 10, 2015

US employment rose in July and wages rebounded after a surprise stand in the prior month, providing signs of an improving economy that could open the door wider to a Federal Reserve interest rate hike in September. Non-farm payrolls increased 215K versus expectation of 225k, while jobless rate was held at a seven-year low of 5.3 per cent and Average hourly earnings rose 0.2% in line with consensus, according to the US Labour Department. The data was not strong enough in order to insure that the Fed will proceed with a rate hike, as it did not provide the needed evidence of "some further improvements" that the Fed was looking for. The US Dollar seems that lost some of its strength against the other majors after the release of the Job Data.

EUR/USD dropped heavily at the end of last week's trade, but consolidated after the US Job Data and rallied off the 1.0855 level reaching to the 1.0978 level and closed the week at the 1.0958 level.

Released from Japan during the Asian session and early European session this morning, Current Account came in at 1.30T versus the estimated 1.41T, Bank Lending rose 2.6% versus the previous of 2.5% and Economy Watchers Sentiment came in at 51.6 missing the estimated 53.1.

Moreover, the BOJ in its Monthly Report reversed its previous estimates of economic growth pointing to positive numbers almost across the board. The central bank stated that Japanese exports are expected to increase moderately and that business fixed investment is projected to continue growing modestly. Private consumption is expected to remain robust and housing investment should be improving. The report also pointed to continued improvement in the employment sector. USD/JPY is currently trading near the 124.45 area with the next resistance seen at the 125.06 level.

The key events for the day will be released from the United States. More specifically, FOMC Member Lockhart and Member Fischer are due to speak today. In addition, Sentix Investor Confidence will be released from Europe and Labour Market Conditions Index will be released from the United States.

Data releases to monitor:

EUR: Sentix Investor Confidence.

USD: FOMC Member Fischer speech, FOMC Member Lockhart speech, Labour Market Conditions Index.

Trade Idea of the Day

EUR/USD

Currently the pair is trading at 1.0962. Traders must monitor the 1.1113 resistance level and the support level of1.0847 for possible breakouts. A possible scenario would be a movement towards the 1.0980 resistance level where a break may lead to the 1.1030 area. An alternative scenario could be a movement towards the 1.0910 support level where a break could lead to the 1.0875 area.

Financial News August 11, 2015

USD again in demand as safe haven after PBoC's decission

The PBoC today's decision to lift the USD-CNY fixing by almost 2% has thrown the market into turmoil. Concerns about the Chinese economy have resurfaced again and are weighing on the currencies of those countries for which China is an important trade partner, in particular the AUD and the NZD.

What is somewhat more surprising is that safe-haven demand for USD has jumped this morning. This has not always been the case during Chinese market fluctuations in the last few weeks.In fact, however, external risks for the USD from this side should not be underestimated, says Commerzbank. While the Fed obviously focuses on domestic developments, Fed Vice-Chairman Stanley Fischer confirmed only yesterday that he and his colleagues are currently less worried about the US labor market than about inflation.

To a significant extent, the low inflation rate is due to temporary factors, such as the oil price decline. However, the declining oil prices have started to drag down long-term inflation expectations again - and this development is certainly a cause for concern, as it does not create the ideal environment for a pick-up in inflation any time soon. And since a pronounced economic slowdown in China would weigh not only on global growth, but also on oil prices, it would not surprise anyone if the recent developments were thought to be negative for the USD, too, adds Commerzbank.

SNB benefits from strong EUR

The franc has depreciated palpably versus the euro in the last few days caused EUR-CHF to reach its highest level in months.

The general trend of the EUR exchange rates suggests that most of the rise in EUR-CHF is due to a strong EUR.

After all, the EUR has appreciated versus other currencies, too, for example the SEK, the GBP and the USD - probably due to the recent pick-up in euro-area growth and inflation. Progress with the negotiations about a third bail-out package for Greece is another supportive factor. This situation is ideal for the SNB.According to Commerzbank, "The strong EUR is driving the market equilibrium EUR-CHF exchange rate upwards, which means that appreciation pressures are declining and the SNB does not need to intervene to weaken the franc any more. Of course, it cannot be excluded that the SNB uses this opportunity to accelerate the upward movement of EUR-CHF by interventions. Nevertheless, it can relax somewhat in view of the current EUR strength. Still, we doubt that the situation will last."

Market Review August 11, 2015

China’s central bank devalued its currency, causing its biggest one-day loss in two decades. The devaluation was the most significant downward adjustment to the Yuan since 1994. PBoC lowered the Yuan’s fixing by -1.9% from the previous trading day, leaving the fixing at 6.2298 to USD compared to the 6.1162, which was yesterday. Chinese authorities said the change would help drive the currency toward more market-driven movements. The move also signalled the government’s growing worry about slow growth. A shift toward a weaker currency could help boosting exports at a time when many other efforts to boost the economy have not proven very effective. China’s central bank announcement dragged Australian dollar against the US dollar to the 0.7305 level after reaching to the 0.7439 level in previous days.

Released during the Asian session this morning, the Japanese M2 Money Stock rose 4.1% beating the estimated 3.9% while Prelim Machine Tool Orders rose 1.6% compared to the previous of 6.6%. USD/JPY is currently trading near the 125.00 level after reaching to the 124.09 level in previous days.

Released during the early European session, the German Wholesale Price Index (WPI) rose 0.1% versus the estimated 0.2% causing insignificant impact on EUR/USD, which is currently trading near the 1.1008 level with the next resistance seen at the 1.1040 level.

The key events for the day will be German ZEW Economic Sentiment, the United States Prelim Unit Labour Costs and Prelim Nonfarm Productivity.

Additional economic releases will be the Canadian Housing Starts and the United Kingdom CB Leading Index.

Data releases to monitor:

EUR: German ZEW Economic Sentiment, ZEW Economic Sentiment.

USD: NFIB Small Business Index, Prelim Unit Labour Costs, Prelim Nonfarm Productivity, Wholesale Inventories.

GBP: CB Leading Index.

CAD: Housing Starts.

Trade Idea of the Day

AUD/JPY

Currently the pair is trading at 91.55. Traders must monitor the 92.68 resistance level and the support level of 89.96 for possible breakouts. A possible scenario would be a movement towards the 91.00 support level where a break may lead to the 90.55 area. An alternative scenario could be a movement towards the 92.09 resistance level where a break could lead to the 92.40 area.

Financial News August 12, 2015

No Greek chaos this time round

The experts from the extended troika (The ECB, the EU Commission, the IMF and now also the ESM) appear to have reached a 'basic' agreement at 'technical level' with the Greek government on a new aid package.

Only a few details allegedly still need to be worked out. The Greek parliament is to vote on the agreement tomorrow, followed by the euro zone finance ministers on Friday and then the remaining countries.

If all goes well, Greece will have fresh funds next Thursday to pay back the ECB the €3bn due. The leftist wing of Syriza has already said it intends to vote against the agreement. And in other countries, too, not least in Germany, there is a growing body of dissent regarding another aid package. So the votes aren't a cut and dried thing at all, but the market should be spared the wheeling and dealing of July, says Commerzbank.

The FX market is responding by sending the euro above 1.1050 to the dollar. The devaluation of the yuan has seriously shaken the Asian markets and has already given rise to new doubts of a Fed rate hike as early as September. Greece first has to implement the reforms demanded, and the Fed is expected to act in September, meaning that the dollar will gain ground again over the coming weeks, adds Commerzbank.

Market Review August 12, 2015

The International Monetary Fund welcomed China’s move to devalue the Yuan and added that it does not directly affect the country’s push to win reserve currency status. The comments by the IMF came as China cut the value of the Yuan for a second day by setting the daily midpoint reference to 6.3306 per dollar and after surprising markets on Tuesday when it lowered the Yuan’s value by the most in two decades and since 1994. The central bank said the move would boost exports and improve the economy gradually. Asian markets are weighed down by intensifying worry over China’s move. AUD/USD dropped further, reaching as low as the 0.7215 level while NZD/USD hit fresh six-year lows of 0.6466.

Elsewhere, Greece agreed to harsh terms for a new three-year bailout on Tuesday and vowed to push it through Parliament this week, despite mounting dissent in the ruling left-wing party. With the country facing the risk of a debt default next week, Prime Minister Alexis Tsipras had sought to speed up the talks after Greece and its creditors reached an agreement on the main points on Tuesday. The agreement still requires approval from higher-level representatives and senior finance officials from the 28 EU states, while Greek Parliament will vote on Thursday to decide if the measures in the third bailout program will be implemented.

Released during the Asian session this morning, the Japanese Revised Industrial Production rose 1.1% beating the estimated 0.8%, Tertiary Industry Activity rose 0.3% versus the 0.1% and Producer Price Index (PPI) dropped -3.0% versus the estimated -2.9%. USD/JPY remained above the 124.50 level and currently is trading near the 124.60 area. Australia Westpac consumer confidence rose 7.8% in August while wage cost index rose 0.6%, as widely expected.

Released during the early European session, China’s Industrial Production rose 6.0% missing the estimated 6.7%, Fixed Asset Investment rose 11.2% versus the estimated 11.5% and Retail Sales rose 10.5%.

The key events for the day will be United Kingdom job data, the United States JOLTS Job Openings and Federal Budget Balance and Eurozone industrial production.

Additional economic releases will be the Swiss ZEW expectations and RBA Deputy Governor Lowe speech.

Data releases to monitor:

EUR: Industrial Production, German 10-y Bond Auction, Greek Gov Debt Crisis Vote, Italian Trade Balance.

USD: FOMC Member Dudley speech, JOLTS Job Openings, Crude Oil Inventories, 10-y Bond Auction, Federal Budget Balance.

GBP: Average Earnings Index, Claimant Count Change, Unemployment Rate.

CHF: ZEW Economic Expectations.

AUD: BA Deputy Gov Lowe speech.

Trade Idea of the Day

NZD/CHF

Currently the pair is trading at 0.6421. Traders must monitor the 0.6520 resistance level and the support level of 0.6341 for possible breakouts. A possible scenario would be a movement towards the 0.6383 support level where a break may lead to the 0.6360 area. An alternative scenario could be a movement towards the 0.6452 resistance level where a break could lead to the 0.6485 area.

Financial News August 13, 2015

Chinas depreciation reason to postpone Fed rate hikes?

A sack of rice falls over in China, and the global financial markets tremble. Of course, this is not just any old sack. The decision by the Chinese central bank, to allow market forces to play a greater role in determining its fixing rate of USD-CNY with immediate effect undoubtedly represents a historic breakthrough.

Commerzbank assumes, the market might indeed interpret developments in China as negative for the USD. For a marked economic slowdown in China would of course have important implications for global economic growth and the commodity markets. Therefore, the Fed might well regard this as posing a risk to growth and inflation in the USA, says Commerzban in a report on Thursday.

However, it is not more than a risk factor. The extent of the growth slowdown in China is not yet known, let alone the contagion effects for the US economy. And the recent measures taken by the PBoC are certainly also intended to support the economy and prevent a "hard landing". It may be somewhat premature to completely dismiss the prospect of an interest rate hike by the Fed in September, as the market did yesterday, adds Commerzbank.

Is EUR a Safe Haven?

While the reaction of USD exchange rates to developments in China is understandable, the movement in EUR rates is somewhat surprising. For the EUR has benefited most so far - clearly acting as a safe haven.

"However, some important factors militate against the continuing strength of the EUR. On the one hand, a marked growth downturn in China would presumably hit the Eurozone as hard, if not even harder than the US. And this would be against a backdrop of the ECB already in expansionary mode to stimulate economic growth and inflation", according to Commerzbank.

This would not raise the question of whether the ECB will defer normalising its monetary policy, but whether it might take further expansionary measures. Moreover, the ECB is likely to show a particularly marked allergic reaction to a stronger appreciation of the EUR, which would endanger its inflation target. Commerzbank suggests, somehwat of a correction of the EUR strength is required.

Market Review August 13, 2015

Once again, China was the main focus of the day, as China’s Central bank weakened its currency further by 1.1% after previous official cuts. More specifically, the central bank put the Yuan’s central parity rate at 6.4010 Yuan for $1, a drop of 1.11% from the previous day’s 6.3306. Furthermore, it was also lower than Wednesday’s close, which came after China adopted a more market-oriented method of calculating the currency rate in a move widely seen as a devaluation. Rumours say that China's devaluation of Yuan may delay Fed's rate hike as China's move was seen as deflationary to the United States and could trigger much uncertainty in the global financial markets.

Released during the Asian session this morning, New Zealand manufacturing index dropped to 53.5 versus the previous of 55.10 while Australia’s Consumer inflation expectation rose 3.7% compared to the previous of 3.4%. Moreover, RBA warned investors to be on guard for unexpected fallout from China's decision to devalue the Yuan, which has triggered large shifts in exchange rates around the region. "We know that movements in exchange rates often set off a chain reaction of events which can be difficult to predict," said Reserve Bank deputy governor Philip Lowe. AUD/USD dropped yesterday to the 0.7215 area but did not remain there as the pair climbed back to the 0.7350 area, where is currently trading.

Released from Japan during the Asian session, Core Machinery Orders dropped -7.9% versus the estimated -5.3%. USD/JPY dropped to the 123.78 level on Wednesday and currently is trading near the 124.55 area.

Released during the early European session, German Final CPI rose 0.2%, while French CPI dropped -0.4%. EUR/USD remained above the 1.1100 handle and reached as high as the 1.1223 level. Currently the pair is trading near the 1.1120 area. Furthermore, Swiss PPI dropped -0.3% versus the estimated -0.2% causing insignificant impact on the CHF, which gain some strength against the relatively weak US Dollar.

The key events for the day will be ECB Monetary Policy Meeting Accounts, the United States Core Retail Sales and Unemployment Claims.

Data releases to monitor:

EUR: ECB Monetary Policy Meeting Accounts.

USD: Core Retail Sales, Retail Sales, Unemployment Claims, Import Prices, Business Inventories, Natural Gas Storage, 30-y Bond Auction.

CAD: NHPI.

Trade Idea of the Day

AUD/USD

Currently the pair is trading at 0.7352. Traders must monitor the 0.7438 resistance level and the support level of 0.7215 for possible breakouts. A possible scenario would be a movement towards the 0.7300 support level where a break may lead to the 0.7265 area. An alternative scenario could be a movement towards the 0.7390 resistance level where a break could lead to the 0.7425 area.

Financial News August 14, 2015

CNY flexibility takes leap forward

Adjustment in the USDCNY fixing was announced earlier this week as a further step towards liberalising the domestic FX market. The move also reflects the fact that the CNY REER has been far stronger than other currencies.

Weaker trade data seem to have increased pressure on the authorities to allow greater currency flexibility. In fact, the CNY REER has appreciated about 18.5% since mid-2014, a far bigger rise than most other currencies, as China has not let the CNY weaken despite a broadly stronger USD, notes Barclays.

The PBoC noted that it will increase yuan flexibility while moving towards convergence of onshore and offshore rates. Importantly, China's central bank now decides the yuan midpoint based on market-makers' quotes, together with closing quotes. The implication is that the fixing will be much more dependent on the market and could move in a more volatile and potentially weaker trajectory than previously, depending on market movements, states Barclays.

German GDP growth rate on downside risk

The Chinese export boom reached its peak quite some time ago and support from South-East Asia as a whole has been shrinking noticeably in recent years, China's problems will impose quite a strain on the German economy.

Commerzbank says, "And while they will hardly threaten the present upturn, the risks for our growth forecast (+1.8% both this year and next) are on the downside, especially next year."

The impact would of course be even greater if China's problems ballooned to become a general emerging market crisis. Some 40% of all German exports are meanwhile destined for these countries, and almost 15% of German value added depends directly or indirectly on local final demand. In addition, in this case we would see significant second round effects, i.e. a weaker demand in the Emerging markets would be a break on the economy in the industrial countries. In that case, the German upswing would be clearly in danger, added Commerzbank.

Market Review August 14, 2015

New Zealand retail sales rose 0.1% versus the estimated 0.5%, while Core Retail Sales rose 0.1% missing the estimated 0.7%. The dominant NZD/USD trend continues to favour the downside despite the slight recovery from the six-year low of 0.6466 reached last Tuesday. The pair is currently trading near the 0.6542 area with the next support seen at the 0.6513 level.

Elsewhere, RBA Assistant Governor Christopher Kent stated that the current monetary policy is helping to support the economy despite limited assistance from other sources of demand. Furthermore, he added that policy “is working against some strong headwinds” and that “Consumption growth has picked up since 2013. But it is still a little weaker than suggested by historical experience”. AUD/USD had seen some recovery from the current week losses. The pair is currently trading near the 0.7388 and it seems that is approaching current week's highs of 0.7439.

China’s Central bank moves to ease uncertainty around currency on global markets after raising the value of the Yuan against the US dollar by 0.05%, and ending three days of falls in a surprise series of devaluations. The daily reference rate was set at 6.3975 Yuan to $1, from 6.4010 the previous day, which was also slightly stronger than Thursday’s close of 6.3982 Yuan.

Released during the early European session, French Prelim GDP rose 0.0% versus the estimated 0.2%, French Prelim Non-Farm Payrolls rose 0.2% versus the estimated 0.1% and German Prelim GDP rose 0.4% missing the estimated 0.5%. Furthermore, the Greek lawmakers approved their country's draft third bailout in a parliamentary vote that relied on opposition party support and saw the government coalition suffer significant dissent.The vote came after a marathon all-night session marked by procedural delays and acrimonious debate over the three-year, about 85 billion-euro rescue package that includes harsh spending cuts and tax hikes. Greece needs the money to avoid defaulting on its debts and securing its future in the euro currency. EUR/USD remained near the 1.1147 area with the next resistance seen at the 1.1213 level.

The key events for the day will be the Canadian Manufacturing Sales, the United States Producer Price Index (PPI), Prelim UoM Consumer Sentiment, Industrial Production and Capacity Utilization Rate.

Additional economic releases will be the Eurostat Final CPI, Flash GDP and Final Core CPI.

Data releases to monitor:

EUR: Italian Prelim GDP, Final CPI, Flash GDP, Final Core CPI, Eurogroup Meetings.

USD: PPI, Core PPI, Capacity Utilization Rate, Industrial Production, Prelim UoM Consumer Sentiment, Prelim UoM Inflation Expectations.

CAD: Manufacturing Sales.

GBP: Construction Output.

Trade Idea of the Day

USD/CAD

Currently the pair is trading at 1.3067. Traders must monitor the 1.3196 resistance level and the support level of 1.2950 for possible breakouts. A possible scenario would be a movement towards the 1.3102 resistance level where a break may lead to the 1.3145 area. An alternative scenario could be a movement towards the 1.3008 support level where a break could lead to the 1.2975 area.

Financial News August 17, 2015

CNY under pressure due to capital outflows

PBoC set the USD-CNY fixing rate at 6.3969 this morning, compared with the previous fixing of 6.3912. Both CNY and CNH exchange rates were narrowly range traded last Friday and this morning.

Ma Jun, chief economist of PBoC, said over the weekend that the CNY exchange rate will probably move in both directions in the future, following last week's devaluation, says Commerzbank.

In addition, FX purchase positions on the balance sheet of PBoC dropped by CNY308bn in July, the biggest decline in record. This signals that the central bank stepped up intervention to stabilize the CNY exchange rate in July. In general, CNY is still under pressure to weaken due to strong capital outflows, adds Commerzbank.

Australia's concerns towards risks from China to rise

The Reserve Bank of Australia (RBA) will release the minutes of its August meeting during the night. However, one should not read too much into these statements.

For Australia, economic developments in China, its largest trading partner, are the biggest risk.

Con-cerns in that area are likely to have increased after the August meeting due to the surprise step of the PBoC to allow for CNY depreciation.

"However, there is reason for optimism for the RBA. On the back of favourable signals from the labour market and the domestic econ-omy, it will wait and see and monitor the effects of the weaker CNY closely. AUD-USD is likely to have reached a new comfortable level for now", says Commerzbank.

Market Review August 17, 2015

Japan’s economy contracted in the second quarter as overseas demand for Japanese goods slumped and consumers cut back spending, raising pressure on Prime Minister Shinzo Abe to step up his policy drive to lift the economy out of decades of deflation. Japan’s GDP dropped -0.4% down from first quarter’s 1.0% growth while Prelim GDP Price Index rose 1.6% versus the estimated 2.2%.The data show that a sustainable recovery in the world’s third-largest economy has been elusive, despite efforts by Prime Minister Shinzo Abe and the Bank of Japan to stimulate growth. Japan’s economy expanded the previous two quarters, but that growth followed two quarters of contraction. USD/JPY is currently trading near the 124.55 area raising up from the 124.05 area.

Elsewhere, The International Monetary Fund (IMF) has called on Eurozone ministers to offer Greece debt relief, following the approval of a new bailout deal. Greece will receive up to €86bn in loans over the next three years, in return for tax rises and spending cuts. IMF chief Christine Lagarde welcomed the agreement, but warned Greek debt had become unsustainable. She said the country needed significant relief "well beyond what has been considered so far”. “Greece cannot restore debt sustainability solely through actions on its own," she added. Furthermore, German chancellor, Angela Merkel has said that she expects the International Monetary Fund to take part in a new €86bn bailout for Greece.

Released during the early European session, Swiss Retail Sales dropped -0.9% versus the estimated -0.6%. USD/CHF is currently trading near the 0.9777 area with the next resistance seen at 0.9798 level.

The key events for the day will be the Empire State Manufacturing Index, the Canadian Foreign Securities Purchases and German Buba Monthly Report.

Additional economic releases will be the Eurostat Trade Balance, NAHB Housing Market Index and TIC Long-Term Purchases.

Data releases to monitor:

EUR: Trade Balance, German Buba Monthly Report.

USD: Empire State Manufacturing Index, NAHB Housing Market Index, TIC Long-Term Purchases.

CAD: Foreign Securities Purchases.

Trade Idea of the Day

NZD/USD

Currently the pair is trading at 0.6542. Traders must monitor the 0.6649 resistance level and the support level of 0.6466 for possible breakouts. A possible scenario would be a movement towards the 0.6579 resistance level where a break may lead to the 0.6610 area. An alternative scenario could be a movement towards the 0.6509 support level where a break could lead to the 0.6480 area.

Financial News August 18, 2015

No price pressure in UK

Recent, more dovish statements by the Bank of England have dampened rate-hike expectations in the UK. Sterling suffered, of course. Today, the ONS will release several inflation series for July. None of them is likely to signal that rate hikes are necessary.

Year-on-year producer price inflation looks set to be clearly negative.

According to Commerzbank, "Consumer prices are likely to have risen a bit more strongly, but not much. Headline inflation looks set to have remained at 0.0%. Only the core rate might provide a ray of hope; it might climb to 0.9% and thus be not too far away from the BoE's target of 2%. The BoE has recently focused on wage inflation, which should lead to price pressure if the economy is doing well."

IMF participation in Greek aid package more than a political question

The negotiations about the bailout package for Greece have reached their final stage - at least that is what the German government suggests. The FX markets are certain that the Bundestag will not withhold its agreement tomorrow.

While EUR-USD has depreciated slightly again over the last few days and is trading around 1.1060 this morning, the euro is not experiencing a significant bout of weakness, says Commerzbank.

Once again, the bailout package is throwing key structural concepts overboard which were originally introduced to protect the euro. The Bundesbank recently emphasized again that a haircut would definitely violate the EU Treaties. However, Greece benefited from a debt haircut some time ago.

Still, this "debt haircut light" has a small flaw, which might have significant consequences for EMU as a whole. This time, the IMF is at the centre of the problem. The fund says it will not participate in a bailout package which does not include a palpable debt haircut. That creates a problem for all those who claim that the support loans will be paid back eventually. Why is the IMF insisting on a debt haircut? Because, according to its analysis (which nobody contradicts), Greece´s debt level is unsustainable. Under its statutes, the IMF may not extend loans to countries if it is obvious that the debt service is not bearable in the long run (i.e. if the country has taken on too much debt). It seems quite impossible to find a compromise with the IMF on this issue.

If the IMF does not provide financial assistance, it will no longer be able to exercise pressure during the regular monitoring of the programme. And who, apart from the IMF, is really capable of monitoring whether Greece implements the agreed-upon reforms as planned? Neither the EU Commission nor the ECB have the necessary staff or expertise. Nor does the ESM, which was created only in 2013 and has only 140 employees. The IMF is the only organization which has decades of experience with helping flailing countries. And it can only use this expertise if it has the opportunity to exercise pressure. The real problem about a "debt haircut light" is that the IMF's know-how will not be available any longer. The Greek bailout has not been a success story so far, and it is unlikely to become one if the IMF is no longer one of the creditors.

The key question for the FX markets is now: How long will it take until the Greek issue pops up once more and negotiations for a fourth bailout package become necessary? The an-swer may surprise some: Without the IMF, it might take longer until it becomes obvious that the recently agreed measures are not implemented or insufficient. One reason is that the remaining supervisors are less experienced, another that all parties are under more political pressure. However, the longer the calm continues, the bigger the damage in the end, adds Commerzbank.

Market Review August 18, 2015

In minutes of its monetary policy meeting, the Reserve Bank of Australia (RBA) said that weakening currency is assisting a transition away from mining investment, while adding that accommodative policy remains appropriate to support growth. Furthermore, the minutes for August meeting noted that “an accommodative monetary policy setting remained appropriate given the forecasts, while observing that the Australian dollar had been adjusting to the shift in activity in the resources sector from the investment production phase." The central bank reiterated that "further depreciation of the Australian dollar was expected to impart stimulus to the economy through stronger net exports."

The central bank kept its cash rate steady at 2.0 percent and noted that "New information about economic and financial conditions would continue to inform the Board’s assessment of the outlook and determine whether the current stance of the policy remained appropriate to foster sustainable growth and inflation consistent with the target."

RBA also commented on the expected rate hike by Fed this year and said that "it was likely that financial market volatility would increase and the U.S. dollar could appreciate further, including against the Australian dollar." AUD/USD remained within the previous days range and currently is trading near the 0.7345 area.

The early European session is quite empty with the focus turned on the UK inflation data that will be released later during the day.

Additional economic releases will be the United States Building Permits , Housing Starts and New Zealand’s GDT Price Index.

Data releases to monitor:

GBP: CPI, PPI Input, RPI, Core CPI, HPI, PPI Output.

USD: Housing Starts, Building Permits.

NZD: GDT Price Index.

Trade Idea of the Day

EUR/USD

Currently the pair is trading at 1.1067. Traders must monitor the 1.1213 resistance level and the support level of 1.0925 for possible breakouts. A possible scenario would be a movement towards the 1.1035 support level where a break may lead to the 1.0990 area. An alternative scenario could be a movement towards the 1.1103 resistance level where a break could lead to the 1.1155 area.

Financial News August 19, 2015

JPY weakness may not prevent exports to fall

Japan's headline trade deficit widened in July to JPY268bn. The detail continues to show very weak underlying export performance. The country posted 7.6% year on year growth in exports. In volume terms, exports were down 0.7% y/y and the trend remains no better than flat.

The second leg of JPY weakness (from 100 to 120 in 2014 H2) appears to be bearing no more fruit than the first (from 80 to 100 in 2013), though the lack of evidence that JPY weakness is "working" will not stop it falling further, says RCB Capital Markets in a report on Wednesday.

ECB to revise macroeconomic outlook in September meeting

The July ECB minutes revealed cautious optimism, highlighting the fragility of the economic recovery, the weak inflation outlook and the balance of risks still tilted to the downside (even if these risks have not worsened since the June meeting).

Quite rightly, the members indicated that attention also needs to be paid to possible changes in commodity prices, to the slowdown in emerging markets and to exchange rate developments to the extent that they could affect the medium-term outlook for price stability. With the ongoing volatility in EM markets, the PBoC's decision to devalue the CNY and weakness in commodity prices, there is no doubt that the ECB will have to focus on these issues in the September policy meeting, possibly providing a revised macroeconomic outlook, including a lower inflation path, says Barclays.

Market Review August 19, 2015

During the Asian session this morning, minimal market movement was noticed in the FX market, due to the lack of significant economic releases and despite the persisting worries over China's economy and on the timing of the Federal Reserve interest-rate hike. Moreover, the Asian stocks fell a fourth day as a deepening commodities selloff raised concern that growth may be slowing in China. Furthermore, the Shanghai Composite index plunged 6.2% to close at 3748.16, which is the biggest drop since July 27.

Released during the Asian session, New Zealand’s PPI Input dropped -0.3% versus the estimated -0.5% while PPI Output dropped -0.2%. In addition, Japan’s Trade Balance came in at -0.37T versus the estimated -0.16T and All Industries Activity rose 0.3% versus the estimated 0.4% causing insignificant impact on the USD/JPY, which remained near the 124.25 area.

Elsewhere, the European Central Bank reduced the maximum level of emergency aid available to Greek banks in a sign the country's financial tensions are easing after a rescue package was agreed with creditors. More specifically, ECB decided to cut the ceiling on Emergency Liquidity Assistance provided by the Bank of Greece to EUR 89.7 billion from EUR 90.4 billion.

The main event for the day will be the FOMC Meeting Minutes, where the focus will be turned on the policy makers comments regarding the timing of the first rate hike and whether September is the appropriate time.

Additional economic releases will be the United States Core CPI, CPI and the ECB Current Account.

Data releases to monitor:

EUR: Current Account.

USD: Core CPI, CPI, FOMC Meeting Minutes, Crude Oil Inventories.

Trade Idea of the Day

EUR/AUD

Currently the pair is trading at 1.5031. Traders must monitor the 1.5296 resistance level and the support level of 1.4825 for possible breakouts. A possible scenario would be a movement towards the 1.5005 support level where a break may lead to the 1.4935 area. An alternative scenario could be a movement towards the 1.5115 resistance level where a break could lead to the 1.5160 area.

Financial News August 20, 2015

Swedish economy to post 3% growth rate in 2015

The Swedish economy has developed pretty much as expected since the Riksbank's monetary policy meeting in July. Growth seems to be set for close to 3 % this year, employment and labour supply continue to increase (making the fall in unemployment only marginal) and inflation should increase from low levels, especially in Q4, says Nordea Bank in a report on Thursday.

The SEK trades close to the Riksbank's forecast. Also, the Riksbank's worries on the Greek situation should have eased somewhat since the previous meeting.

Nonetheless, the Riksbank is expected to provide further easing at its next monetary policy meeting on the 2nd of September, announcement the 3rd of September. A repo rate cut by another 10 bps, from -0.35% to -0.45% is expected, estimates Nordea Bank. The Riksbank expanded its government bond purchase programme by 45 bn SEK in July, thereby amounting to bn 135 SEK in total. The programme will be carried out throughout 2015. Nordea Bank states, neither an expanded programme or additional rate cuts below -0.45 % can be excluded.

Analysts still regard the Riksbank's inflation forecast being on the high side. Admittedly, the most recent inflation outcome surprised on the upside. Inflation (CPIF) stood at 0.9% y/y in July, 0.2% point higher than the Riksbank's projection. But overall cost pressures remain low and the inflation outlook is muted, adds Nordea Bank. Both electricity and fuel prices have declined over the summer, which has not yet fed through to the inflation readings to a full extent.

Chinese economic activity could pose risks to U.S. economic outlook

The low level of inflation and wage inflation is creating doubts in the U.S. economy. Some participants cited downside risks to inflation, pointing to the absence of any noticeable response of inflation to the reduction in resource slack over the past several years, risks of further declines in oil and commodity prices, and the possibility of further appreciation in the dollar.

The downward pressure on inflation from the previous declines in energy prices and the effects of past dollar appreciation would prove to be temporary.

Chinese economic activity could pose risks to the U.S. economic outlook. A possible divergence in interest rates in the United States and abroad might lead to further a

Market Review August 20, 2015

The Minutes from the Federal Reserve's meeting were out early 20 minutes before the official release and after a leak. Late July meeting minutes showed that policymakers are concerned about lagging inflation and that a stronger dollar and Chinese developments are threatening the US economy. What is worth noting is that the Fed meeting took place before Chinese devaluation of the Yuan in early August, which means that in their upcoming meeting the Central Bank may well consider such risk has increased and therefore delay a rate hike. Furthermore, Policy makers agreed that "the conditions for policy firming had not yet been achieved, but were approaching that point.” A mixed reaction was noticed in the markets as US Dollar lost its edge against other major currencies falling to a three-week low of 123.68 against the Japanese Yen while the EUR/USD rose to 1.1132 level extending its rebound from this week's low of 1.1016. Moreover, Gold rose to one-month high of 1.1140. The focus will be on the upcoming economic data before September Fed meeting, as Jobs, manufacturing and inflation data may signal a red light for the long expected Fed rate hike.

Released during the early European session this morning, Swiss Trade Balance came in at 3.74B versus the estimated 2.59B causing slight impact on the USD/CHF, which is currently trading near the 0.9660 area after falling from the 0.9780 area. Released from Germany, Producer Price Index (PPI) rose 0.0% versus the estimated -0.1%.

Elsewhere, U.S. oil fell to a six-year low below $41 a barrel, a price last seen at the height of the financial crisis in February 2009, raising expectations that crude could drop below $40 soon. The seasonal falloff in demand together with concerns about the Chinese economy and the continuing global glut of crude are estimated to be the main reasons for this price drop.

The main event for the day will be the United Kingdom Retail Sales, the United States Unemployment Claims, Existing Home Sales and Philly Fed Manufacturing Index.

Additional economic releases will be the Canadian Wholesale Sales and United Kingdom CBI Industrial Order Expectations.

View our full economic calendar for a daily roundup of major economic events.

Data releases to monitor:

EUR: Spanish 10-y Bond Auction.

USD: Unemployment Claims, Existing Home Sales, Philly Fed Manufacturing Index, CB Leading Index, Natural Gas Storage.

CAD: Wholesale Sales.

GBP: Retail Sales, CBI Industrial Order Expectations.

Trade Idea of the Day

GBP/JPY

Currently the pair is trading at 194.39. Traders must monitor the 195.25 resistance level and the support level of 192.00 for possible breakouts. A possible scenario would be a break of the 194.00 support with target 193.60 and possible the 193.20 area. An alternative scenario would be a move above 194.50 with possible testing of 194.90 level.

Financial News August 21, 2015

USD absorbs depreciation of other currencies

At the margin newly arisen risks from China and the implied USD appreciation may dissuade those members of the FOMC who lack confidence in US economic momentum from voting for a hike in September.

But currencies cannot escape relative value; hence, the US as a largely closed economy with the greatest internal growth momentum is relatively less affected, implying the USD bears the burden of others' adjustment.

"Furthermore, if Fed policymakers are dissuaded from policy firming due to risks from China, it is even more likely that other major central banks' policies will push back tightening or move toward outright easing. It is worth stating that our forecasts implicitly force the USD to absorb nearly all of the depreciation of other currencies. This is not to say that the US is unaffected by Chinese growth or the weakening of the CNY", states Barclays in a ressearch note.

Bullish bias in EUR rates is unlikely to disappear

The bullish bias in EUR rates is unlikely to disappear as the ECB has little choice but to remain accommodative, if not increase this accommodation at some point. Therefore, a more bullish message from the September ECB meeting is possible.

"While there is a bullish bias in rates, levels are not found to be attractive to initiative a new outright position though. In EGBs, short-term tactical outperformance of Spain is seen versus Italy in the 10y sector with this week's Spanish auctions out of the way and Italy likely to issue a new 10y BTP at the 28 August month-end auction", says Barclays.

Bund ASW at 40bp trades close to the wides of the summer currently. While setting up for the September swapped issuance pipeline can put tightening pressure on spreads, the current level is not very expensive fundamentally, and the bullish sentiment in the rates market can likely overshadow any expected near-term swapped issuance anticipation near term.

"Therefore, a further outright rates rally is likely to be seen that squeezes Bund ASW more before considering any tactical shorts", added Barclays.

Euro area PMIs on focus

The EUR has been well supported of late, regardless of the latest developments pointing towards a rising probability of the ECB turning more aggressive on monetary policy, at least verbally. Both weakening commodity price developments and a stronger EUR may have increased downside risks to inflation considerably, especially if growth momentum fails to accelerate from the current levels.

From that angle today's focus will be on preliminary August PMI releases. Considering muted external demand prospects due to Asia related tensions, business activity is unlikely to improve strongly.

Under such conditions it cannot be excluded that medium-term inflation expectations as measured by 5y inflation swaps will continue to trend lower in the weeks to come, says CAB Bank. This in turn suggests that the ECB will have to become more aggressive in order to prevent deflation fears from reappearing. It must be noted that starting with the next week several central bank members including Executive Board member Coeure will speak.

"As a result to the above outlined conditions we advise against buying the single currency around the current levels, in particular against the USD and GBP", suggests CAB Bank.

Market attention remains on China and the Fed

Moving on from Greece, market attention remains on China and the Fed. Following China's currency devaluation last week, the Chinese stock market remained very volatile this week, facilitating the downward pressure on global stock markets and commodities with Brent oil down another c.5%, just shy of its lows in January.

Meanwhile, emerging markets, especially the currencies, are under remarkable pressure helped by the China story, Fed getting closer to the lift-up and domestic issues in certain EM countries. In this environment, bond markets have stayed resilient with 10 Bund rallying 7bp and 10y Treasuries and Gilt yields falling by 10bp.

Somewhat weaker-than-expected US inflation data and relatively dovish July FOMC minutes have also helped the bond market strength this week.

"The recent fall in oil price will also likely to lead the ECB to lower its inflation projections in the 3 September staff projections. Furthermore, at 1.12, EURUSD is struggling to cheapen, especially during flight-to-quality episodes, partly because it is also a funding currency now", says Barclays.

Lastly, with almost up to the 4y part of the German curve again trading below -20bp following the recent market rally, ECB is anecdotally pushing its QE purchases further out on the yield curve, not just in Germany but also in some peripheral issuers, which is making longer-end EGBs more resilient.

Market Review August 21, 2015

On the very day that Greece received the first tranche of its new EUR 86bn bailout package, from the European stability mechanism, the European Union’s rescue fund, Prime Minister Alexis Tsipras has decided to resign and call a snap general election, which will be held next month. In the next few months, Alexis Tsipras government has much to do in order to meet the terms of the bailout and persuade its creditors to consider giving Greece some much needed debt relief. The election will most probably complicate that timetable and will inevitably create more uncertainty about where the future of Greece. However, despite the risks it involves, Tsipras’s strategy seems necessary for broader democratic and political reasons.

Released during the Asian session, Japan Flash Manufacturing PMI came in at 51.9 versus the estimated 52.1, New Zealand Credit Card Spending rose 9.7% versus the previous of 6.6% and Chinese Caixin Flash Manufacturing PMI came in at 47.1 missing the estimated 48.1. The US Dollar is sharply lower against the other majors especially against Euro and Yen as markets seem to be adapting to expectations of a Fed rate hike in September. EUR/USD rose to the 1.1294 level making EUR the strongest currency for the week. Furthermore, Gold extended its gains reaching as high as $1168 per ounce.

Released during the early European session this morning, GfK German Consumer Climate came in at 9.9 versus the estimated 10.2, French Flash Manufacturing PMI came in at 48.6 versus the estimated 49.8 and French Flash Services PMI came in at 51.8 missing the estimated 52.1. Moreover, German Flash Manufacturing PMI came in at 53.2 beating the estimated 51.7 and German Flash Services PMI came in at 53.6 versus the estimated 53.7.

Elsewhere, the United States equities suffered the steepest one-day sell-off in more than a year on concern over global growth in China and other emerging markets. DJIA dropped -2.06% to close at 16990 and breaking below the 17000 handle, which is the largest decline since February last year. S&P 500 also dropped -2.11% to close at 2035.73.

The main event for the day will be the Canadian Core CPI, Core Retail Sales and United States and Europe Flash Manufacturing PMI.

Data releases to monitor:

EUR: Flash Manufacturing PMI, Flash Services PMI, Consumer Confidence.

USD: Flash Manufacturing PMI.

CAD: Core CPI, Core Retail Sales, CPI, Retail Sales.

GBP: Public Sector Net Borrowing.

Trade Idea of the Day

NZD/JPY

Currently the pair is trading at 81.36. Traders must monitor the 83.25 resistance level and the support level of 80.67 for possible breakouts. A possible scenario would be a movement towards the 81.19 support level where a break may lead to the 80.90 area. An alternative scenario could be a movement towards the 81.90 resistance level where a break could lead to the 82.15 area.

Financial News August 24, 2015

EUR-USD at 1.15 What will ECB think about that?

The 1.15 in EUR-USD was not breached for the time being. Nonetheless the euro is the main benefactor of the uncertainty on the FX market. The current EUR strength could soon become an issue: speeches by no less than three ECB central bankers are due over the coming three days.

So far things have worked out well for the ECB on the currency side of things.

"However, the success of the QE strategy could soon be at risk if the euro records further gains. ECB President Mario Draghi made it clear at the last press conference that the ECB would be willing to use all tools available within its mandate should this be the case. The ECB will no doubt put up a fight", states Commerzbank in a report on Monday.

CNY to weaken on PBoCs policy dilemma

PBoC set USD-CNY fixing rate at 6.3862 this morning, compared with last closing of 6.3889. While China's central bank intends to stabilize the CNY spot rates, a strong selling CNH flows in the offshore market is seen due to concerns over China's slowdown.

USD-CNH breached above 6.4650 this morning, which has pushed up USD-CNY to around 6.40 as well.

In fact, China's central bank is facing a policy dilemma: the market liquidity is tightening due to capital outflows; nonetheless, if PBoC injects large amount of cash to ease the liquidity tightness, this will exacerbate the expectation of CNY depreciation. Therefore, weakening bias in CNY exchange rate in the near term is expected, argues Commerzbank.

Feds September decision: Little reason for USD weakness

In view of the successes of the US economy and the strong labour market in the US the fundamental factors continue to support the US dollar. However, the USD too was under attack today as a result of the risk-off sentiment.

At least against the EUR the USD was not the ultimate safe haven today. This is because, the risks in China and the turbulence this causes might cause the Fed to postpone its first rate step in September, states Commerzbank. To December at the earliest, but possibly even to early next year. The market is lowering its rate expectations, which is putting pressure on the US dollar.

Concerns about an end of the cheap money from the US are no doubt contributing to the current nervousness on the FX market. Even though US monetary policy would remain expansionary even after a first rate step. And even if the Fed was to postpone its first rate hike there is little scope for extensive dollar weakness. In that case other central banks would not only have to react to the risks emanating from China and to falling commodity prices, but also to the Fed's hesitant approach - and would probably have to implement further monetary policy steps, says Commerzbank.

Market Review August 24, 2015

On Sunday, the State Council of China announced that it allowed pension funds managed by local governments to invest in the stock market for the first time, potentially channelling hundreds of billions of Yuan into the country's struggling equity market. According to rules, published by the State Council, pension funds will be able to invest up to 30 percent of their net assets in the country's stocks, equity funds and balanced funds. Asian markets opened the week sharply lower affected by the meltdown in China stock market. China’s stocks plunged the most since 2007 as government support measures failed to allay investor concern that a slowdown in the world’s second-largest economy is deepening. The Shanghai Composite Index tumbled 8.5 percent to 3,209.91 at the close.

Moreover, global markets were affected by China’s worsening slowdown. The US Dollar suffered losses especially against Euro, the Japanese Yen and Swiss Franc. EUR/USD climbed to the 1.1497 area, USD/JPY dropped to the 120.70 area and USD/CHF plunged to the 0.9365 area. Furthermore, Crude oil extended its recent descent, reaching as low as $39 per barrel.

Elsewhere, Greece’s pre-election campaign has turned ugly before it has even officially started, Confusion over the timing of fresh elections in Greece has threatened to jeopardise the prospects for a smooth transition to a new government and the ability of the debt-stricken country to meet the conditions of its Euro 86bn bailout. The election campaign intensified over the weekend with officials preparing candidate lists and the appointment of a caretaker administration after the Prime Minister, Alexis Tsipras refused to participate in talks with other party leaders to form a new government. The prospect of snap elections in Greece has raised fears that the country will once again fall behind implementation of vital reforms as officials indicated the poll could be held as early as 20 September. Eurozone politicians and investors are keenly watching the situation in Athens after Tsipras said he needed to renew his mandate with the Greek people following the deal with Brussels.

The economic calendar is empty today with the focus turned on the developments in Greece, China and the emerging markets.

Trade Idea of the Day

EUR/JPY

Currently the pair is trading at 138.19. Traders must monitor the 138.95 resistance level and the support level of 137.06 for possible breakouts. A possible scenario would be a movement towards the 138.01 support level where a break may lead to the 137.75 area. An alternative scenario could be a movement towards the 138.54 resistance level where a break could lead to the 138.85 area.

Financial News August 25, 2015

Chinese economy slowing at alarming pace

The latest sharp risk selloff in global market took many market analyst by a surprise. Part of the problem seems to be that unlike recent bouts of risk aversion the latest was not triggered by the 'usual suspects' - the Fed, the debt crisis in Europe or the fear of further selloff in commodity prices - but by China.

There is therefore little that the FOMC or the ECB (or, for that matter, the BoJ or the BoE) could do to lift the market risk sentiment. Indeed, the fear is that the Chinese economy is slowing at an alarming pace and that the domestic policy makers have fallen well behind the curve.

To make matters worse, weaker Chinese exports (because of sharp CNY REER appreciation in recent years and still feeble global trade) are among the culprits for the economic malice. This forced the PBOC to join the global currency wars with a bang couple of weeks ago. Weaker CNY should continue to propagate and prolong the negative impact from the Chinese demand shock on commodity and manufacturing exporters around the world, says CAB Bank in a research note on Tuesday.

Market Review August 25, 2015

China made the global economy looks fragile again. China started an alarming red light that caused global equities to collapse following a global sell off and the worst day in the last four years.

The JPY and EUR benefited the most of these and made fresh highs against the USD on Monday. Both the EUR and JPY are bought back as investors unwind positions in trades that entail higher risk but also higher potential return. The USD tumbled as this may have consequences to the US economy and the FED plans to hike the interest rates in September.

As Central banks tend to protect their financial markets, possible interventions or other actions may occur, a Japan official said that there is no plan for emergency MoF-BoJ-FSA meeting now, but possible if needed. In US Atlanta Fed Lockhart commented that a rate hike will begin sometime this year since normalization in monetary policy is needed, rates may remain low for some time more due to stronger USD and oil price drop that complicates growth forecasts. From Australia officials call for market calm as Australia fundamentals indicators are still good.

On the data front so far we had Australia’s CB Leading Index m/m at -0.2%, China’s CB Leading Index 0.9%. New Zealand’s Inflation Expectations announced at 1.9%. German Final GDP q/q came in at 0.4% and Switzerland’s Employment Level reported at 1.24 million.

German Info Business Climate and US CB Consumer Confidence and the US New Home sales will be among the highlights of the day.

Data releases to monitor:

EUR: German Ifo Business Climate

USD: US CB Consumer Confidence, US New Home sales,

CAD: Gov Council Member Schembri Speaks

Trade Idea of the Day

NZD/USD

Currently the pair is trading at 0.6515. Traders must monitor the 0.6797 resistance level and the support level of 0.6252 for possible breakouts. A possible scenario would be a movement towards the 0.6533 resistance level where a break may lead to the 0.6590 area. An alternative scenario could be a movement towards the 0.6428 support level where a break could lead to the 0.6370 area.

Financial News August 26, 2015

Major economies growth likely to fall in next few years due to weaker CNY

Markets have been pricing in a higher risk of disinflationary pressure, and rightly so. Growth and inflation in the major economies are likely to fall in the next few years as a result of a weaker CNY.

Europe and Japan are more vulnerable than the US, and the effect would be positive only for China.

In line with this view, markets are anticipating that central banks will keep an easing bias, given the disinflationary influence of a weaker CNY. Core fixed income market have rapidly priced in these disinflation risks. Bond yields in major markets have fallen across the curve, but the moves have been more prominent in inflation breakevens, suggesting that inflation is a bigger concern than growth.

"We agree with this view in the euro area and perhaps the UK, but not in the US. In the latest Global Inflation-Linked Monthly: Avoid the bear trap, our inflation strategists recommend being long US BE inflation up the 5y sector (energy hedged)", says Barclays.

The market pricing of inflation is too aggressive, considering that the recent US inflation trends have been positive, labor markets have tightened further, and the Fed's reaction function is data dependant.

CNY has opened opportunities, notably in EM FX

As Chinese growth slowed and commodity prices fell, the currencies of commodity exporters and of China's regional trading partners have fallen versus the USD, which has also been strengthening versus major currencies as the US recovery gathers momentum and monetary policy easing is reduced.

The CNY move has led to further concerns about EM generally and EM and commodity currencies in particular.

"The external environment for EM has been more difficult since 2011 and it is likely to get tougher, given that the USD and US rates are likely to rise further and that commodity prices will have limited upside as China continues to slow in the next few years", says Societe Generale.

A stronger USD, in particular, is usually associated with higher US rates, it dents the FX appreciation gains on EM assets and increases the value of USD-denominated EM debt.

Market Review August 26, 2015

China’s central bank cut interest rates on Tuesday and said it would pump liquidity into the banking sector in an attempt to boost the slowing economy. Moreover, PBoC announced that it had reduced its benchmark one-year lending rate by 25 basis points to 4.6 per cent, effective from Wednesday August 26, which is the fifth time to cut rates since November. Furthermore, the bank also cut the one-year savings rate by 25 basis points to 1.75 per cent and said it would lower the reserve requirement ratio for large banks 50 basis points to 18 per cent from September 6. In addition, Shanghai Composite index closed down 1.3 percent at 2,926.3, as investor confidence remained frail despite fresh monetary stimulus.

The Japanese Yen remains the strongest currency for this week followed closely by the Euro and Swiss franc. Dollar and Sterling remained in the same tight range. USD/JPY is currently trading near the 119.45 area, GBP/USD near the 1.5685 area, USD/CHF near the 0.9420 and EUR/USD near the 1.1500 area.

Released during the Asian session, New Zealand’s Trade Balance came in at -649M versus the estimated -665M, causing insignificant impact on NZD/USD, which remained near the 0.6485 area. Japan Services Producer Price Index (SPPI) rose 0.6% beating the estimated 0.4% and Australian Construction Work Done rose 1.6% versus the estimated -1.5%.

Released during the early European session, Swiss UBS Consumption Indicator came in at 1.64 compared to the previous of 1.61.

Elsewhere, Oil prices staged a comeback on Tuesday, amid gains from bargain hunting and short covering spurred on by an interest rate cut from China’s central bank. Light, sweet crude for October delivery settled 2.8% up at $39.31 a barrel while Brent gained 1.2%, to $43.21 a barrel. Both had fallen to fresh six-year lows Monday as a broad market selloff sparked by China added to a series of massive losses from an unrelenting flood of supply.

The main event for the day will be the United States Core Durable Goods Orders, FOMC Member Dudley speech and Crude Oil Inventories.

Additional economic releases will be the United Kingdom BBA Mortgage Approvals and CBI Realized Sales.

Data releases to monitor:

USD: Core Durable Goods Orders, Durable Goods Orders, FOMC Member Dudley speech, Crude Oil Inventories.

GBP: BBA Mortgage Approvals, CBI Realized Sales.

Trade Idea of the Day

GBP/USD

Currently the pair is trading at 1.5690. Traders must monitor the 1.5818 resistance level and the support level of 1.5561 for possible breakouts. A possible scenario would be a movement towards the 1.5720 resistance level where a break may lead to the 1.5770 area. An alternative scenario could be a movement towards the 1.5659 support level where a break could lead to the 1.5610 area.

Financial News August 27, 2015

PBoC may take additional monetary easing

The PBoC has already cut interest rates and the reserve requirement ratio (RRR) twice since June as a response to the stock market turmoil. Additional monetary easing is expected but the benefit of every additional move is likely to be smaller.

During summer, a number of unprecedented measures have been introduced, such as outright ban of selling for investors holding more than 5% of a stock and large purchases from the "national team". Neither of these measures has been able to stop the market crashing.

Larger policy interventions is needed in case the equity turmoil spills over to the real economy, says Nordea Bank. The massive stimulus to stabilise the economy during the Global Recession clearly had negative side-effects, including the build-up of a housing bubble and a credit bubble and thus the economy will need to be in fairly big need to prompt larger-scale easing measures.

Nordea Bank suggests additional policy steps in order of likelihood:

High likelihood: Rate cuts, RRR cuts and ad hoc measures directly aimed at the equity markets

Medium likelihood:Larger-scale fiscal and monetary easing

Low likelihood: Additional significant CNY devaluation

Increased likelihood of ECB extending QE program

At least ECB member Peter Praet does not mice his words. In his view there are risks as regards the inflation target due to developments in the global economy and on the commodity markets.

According to Praet, the ECB is prepared to extend the QE programme or to increase its volume.

Next week Mario Draghi, who by the way is not going to the wilderness of Wyoming, will announce new projections for growth and inflation at the ECB meeting. At that stage the market will receive more information on the future of QE.

"There is an increased likelihood that QE will be extended beyond September 2016 the longer the turbulence on the financial markets persist thus leading to increased concerns about the long term impacts on the real economy", says Commerzbank.

Market Review August 27, 2015

Yesterday markets were volatile and behaved as expected and corrected the Monday’s drop. The US stock market indices DJIA and S&P show the biggest percentage gain in the last four years. In Asia Nikkei followed and gain 250 pts, same for HSI that rised as well. Also, China's Shanghai composite is up by 5.3% and reclaimed 3080 level.

In the currency markets, comments from FED official William Dudley downplayed prospects of a September rate hike helped USD and the market to stabilise. Investors reacted by unwinding recent moves that lifted both the JPY and the EUR. "The yen, euro and Swiss franc are funding currencies...and so when things calm down, dollar/yen can rise and the euro can slip against the dollar," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corp in Singapore.

On the data front so far we had Australia’s Private Capital Expenditure q/q at -4% missing the forecast of -2.5%. Eurozone M3 Money Supply y/y came in at 5.3%. IN US today main focus will be Prelim GDP q/q and Unemployment Claims.

Data releases to monitor:

EUR: Private Loans y/y

USD: Prelim GDP q/q, Unemployment Claims, Pending Home Sales m/m

Trade Idea of the Day

EUR/CAD

Currently the pair is trading at 1.4946. Traders must monitor the 1.5445 resistance level and the support level of 1.4695 for possible breakouts. A possible scenario would be a movement towards the 1.4790 support level where a break may lead to the 1.4695 area. An alternative scenario could be a movement above the support level of1.5230 with target the 1.5375 area.

Financial News August 28, 2015

Euro reference rates to remain low and stable

With the curves already pricing Eonia rates close to the depo facility on expectations of a further increase in the surplus, the room for reducing Eonia and Euribor fixings further is limited absent a new policy rates cut.

"The liquidity expansion, which is expected to continue on the QE purchases and more TLTROs to be conducted until June 2016, will be crucial to keep liquidity conditions accommodative and money market reference rates (Eonia and Euribor fixings) stable at very low levels", says Barclays.

In this respect, the recent increase in market volatility has not affected money market rates up to 1-year, contrary to longer maturities being affected due to greater sensitivity to EGB market flows.

Is US rate hike still on the table?

Yesterday's positive US GDP data matches the positive sentiment on the markets. The data illustrated once again that first estimates from the US are not very resilient. A rather small rise in Q2 of annualised 2.3% turned into an impressive 3.7% (qoq).

That would be well above potential growth rates. Could that be the straw that breaks the Fed's back and causes it to hike rates after all in just under three weeks' time? For the time being the market does not yet want to really bet on that following yesterday's data.

"For that to be the case we would have to hear some clearly more aggressive comments from the Fed in Jackson Hole this weekend followed by a super strong labour market next week. And of course the recent recovery on the Chinese stock markets would have to turn out to be more than just a flash in the pan", says Commerzbank.

However, there is some data due for publication today that FOMC members will pay attention to. First of all there is some price data in the shape of the PCE deflator which is of particular significance for the Fed. However, mom changes are likely to be limited.

"There is even a chance that everything will remain unchanged yoy at 0.3% (core rate +1.3%) in July. 90 minutes later the University of Michigan's poll will then provide insight into consumer sentiment in the second half of August while also providing information on the inflation expectations of those polled. Long term the latter was quite stable at 2.7%, the last thing the Fed needs would be a fall", added Barclays.

Market Review August 28, 2015

During the Asian session this morning, the economic releases from Japan were the main focus. More specifically, Household Spending dropped -0.2% missing the estimated 0.9%, Tokyo Core CPI dropped -0.1%, National Core CPI rose 0.0% beating the estimated -0.2%, Unemployment Rate rose 3.3% versus the estimated 3.4% and Retail Sales rose 1.6% beating the estimated 1.1%. The inflation figures which are way below the Bank of Japan's (BoJ) 2.0% inflation target, are sure to boost expectations that BoJ will expand its already record 80 trillion yen annual asset-buying plan to counter the downturn. Furthermore, the recent situation in China, which is a major trading partner with Japan, signals additional danger to the Japanese economy as the recent freefall in the Chinese stock market may bring new financial nightmare to the global equity markets, which will definitely affect Japan also. USD/JPY rose back to the 121.00 area after falling to the 116.20 area on Monday.

Released during the early European session, Swiss Gross Domestic Product (GDP) rose 0.2% from the previous quarter, beating the estimations that will drop -0.1%. Switzerland's economy grew in the second quarter as solid private and government spending offset the impact of the strong Swiss franc on foreign demand for the country's goods. The GDP data shows also that Switzerland avoided recession by recording a slight growth in the second quarter. USD/CHF is currently trading near the 0.9615 area after dropping to the 0.9260 area at the beginning of the week. Released from Spain during the session, Flash CPI dropped -0.4% versus the estimated -0.1%.

The main events for the day will be the United Kingdom Second Estimate GDP, Prelim Business Investment and Prelim Business Investment.

Additional economic releases will be the United States Goods Trade Balance, Core PCE Price Index, Personal Spending and Revised UoM Consumer Sentiment.

Data releases to monitor:

Data releases to monitor:

USD: Goods Trade Balance, Core PCE Price Index, Personal Spending, Personal Income, Revised UoM Consumer Sentiment, Revised UoM Inflation Expectations.

GBP: Second Estimate GDP, Prelim Business Investment, Index of Services.

CAD: RMPI, IPPI.

EUR: Italian 10-y Bond Auction.

Trade Idea of the Day

USD/CAD

Currently the pair is trading at 1.3189. Traders must monitor the 1.3352 resistance level and the support level of 1.3058 for possible breakouts. A possible scenario would be a movement towards the 1.3240 resistance level where a break may lead to the 1.3280 area. An alternative scenario could be a movement towards the 1.3170 support level where a break could lead to the 1.3115 area.

Financial News August 31, 2015

USD-CNY to be range-traded in near term

PBoC set USD-CNY fixing at 6.3893 this morning, compared with previous closing rate of 6.3885. USD-CNY trended downward this morning following unwinding activities in USD long positions in both onshore and offshore markets, as China's Premier Li Keqiang reiterated over the weekend that there is no basis for continued depreciation of CNY.

In the meantime, Premier Li also emphasized the importance of financial stability, indicating that China's central bank could continue to intervene into the market to stabilize the CNY exchange rate.

"At the same time, China's central bank will continue to add liquidity into the system as intensive interventions drain a large amount of CNY liquidity from the market. In the near term, USD-CNY spot rate is seen to be range traded between 6.38 and 6.40", says Commerzbank.

Clearly the Chinese regime is trying to calm markets rather than generate further excessive volatility. Too much volatility would be a bad idea, as its main concern should be to prevent too much capital leaving the country. The quicker capital flows out the larger the risk that following the stock market other domestic capital bubbles might burst. Systemic risks are typically caused by the property market - as property crises quickly affect the financial system of a country, which will have to be prevented.

However, according to Commerzbank, the medium to long term outlook for China is a completely different set of news. Publicly the regime seems to try and make single journalists and traders responsible for the crash on the stock markets. As ridiculous as that may seem to Western readers, two things are worth remembering:

That is no too much different in the West. After every crash the public (if not the government) finds someone to blame. The pattern is almost the same and has been sufficiently described. Even those who had bet on ever rising tulip prices in the Netherlands of the 16th century blamed others for their losses after the bubble had burst.

In all political systems this approach prevents a sensible investigation of the causes and consequences of a crash. This is not a recipe for ensuring long term stability - on the contrary.

Domestic data no burden for JPY

n July Japanese industrial production was surprisingly weak as the Ministry for Trade and Industry announced this morning. July industrial production is declined by 0.6% mom, after a firm growth in June of +1.1% mom.

However, the yen was unaffected by the news. It was able to appreciate in line with its role as a safe haven. The fact that Chinese stocks started the week on the wrong foot and that the oil price is easing against Friday's high was clearly more important than domestic factors. Current developments are further proof of how much exchange rates are driven by global factors rather than country specific factors.

Market Review August 31, 2015

The Asian session this morning was quite busy with economic releases from Australia, Japan and New Zealand. Released from Australia, MI Inflation Gauge rose 0.1% versus the previous of 0.2%, HIA New Home Sales dropped -0.4% compared to the previous of 0.5%, Company Operating Profits dropped -1.9%, matching the estimated, and Private Sector Credit rose 0.6 beating the estimated 0.4%. AUD/USD remained near the 0.7140 area and within previous week range. Released from Japan, Prelim Industrial Production dropped -0.6% missing the estimated 0.1% and Housing Starts rose 7.4% missing the estimated 11.2%. USD/JPY remained at the 121.00 area with the next resistance seen at the 121.63 level. Released from New Zealand, ANZ Business Confidence fall to the -29.1, which is the lowest level since the height of the global financial crisis. NZD/USD dropped slightly and is currently trading near the 0.6420 area.

Elsewhere, Jackson Hole symposium showed that people doubt the capability of central banks to steer inflation. Moreover, Fed Vice chair Stanley Fischer's speech in Jackson Hole Symposium was seen slightly more hawkish than expected. He noted that recent performance of job market data were "well above the amount needed to continue the strengthening of the labour market". He also noted inflation would move higher as "forces holding down inflation dissipate further”. Additionally Fed can "probably remove accommodation at a gradual pace".

Fed Vice chair Stanley Fischer added that the case for September hike was "pretty strong" before China devaluated Yuan. He also expressed optimism that the United States economic performance have "been impressive" and was "returning to normal".

Released during the early European session, German Retail Sales rose 1.4% versus the previous of -1.0% causing insignificant impact on the EUR/USD, which started the week slightly higher than it closed. EUR/USD is currently trading near the 1.1215 area with the next support seen at the 1.1155 level. Furthermore, Switzerland’s KOF economic barometer rose to a seasonally adjusted 100.7, from 100.4 in the previous month whose figure was revised up from 99.8.

The main events for the day will be the Eurostat CPI Flash Estimate and Core CPI Flash Estimate, the Canadian Current Account and the Chicago PMI.

Additional economic releases will be the Italian Retail Sales and Prelim CPI.

Data releases to monitor:

GBP: CPI, PPI Input, RPI, Core CPI, HPI, PPI Output.

USD: Housing Starts, Building Permits.

NZD: GDT Price Index.

Trade Idea of the Day

EUR/USD

Currently the pair is trading at 1.1219. Traders must monitor the 1.1713 resistance level and the support level of 1.0848 for possible breakouts. A possible scenario would be a movement towards the 1.1280 resistance level where a break may lead to the 1.1360 area. An alternative scenario could be a movement towards the 1.1180 support level where a break could lead to the 1.1135 area.

Financial News September 1, 2015

USD-CNY to be range-traded in near term

Things do not look much better in the Euro zone. Long term inflation expectations react in a clearly visible manner to the developments of the oil price. It would be desirable to reach a situation where long term inflation expectations were independent of short term effects, as a sign of confidence into the ECB's ability to manage inflation.

While that is clearly not the case, the rising oil price is causing inflation expectations to rise again. Anyone accepting that inflation expectations play a significant role in the economic process of inflation generation will have to come to the conclusion that the inflation outlook in the euro zone remains depressed, at least as long as a continuous rise in commodity prices (unlikely) or a continuous euro depreciation create a constant flow of inflation momentum.

"At some stage sooner or later the ECB would then have to react. Later is more likely than sooner. It will have to become sufficiently clear that the medium term inflation target is being missed before the European central bankers change their QE programme (i.e. extend or expand it). That will then cause euro weakness through a different channel. Whichever way it will happen, in the end the different alternatives will all lead to a weaker euro", says Commerzbank.

This outlook would only come under threat if the rest of the world was in a similar situation, as all currencies obviously cannot depreciate at the same time. However, the Fed's relaxed approach signals, Nobody is going to take action against the appreciation of the US dollar, at least this currency will be able to shoulder the burden of appreciation.

No surprises from RBA

The RBA is not expected to change its key rate today, and it didn't. It is not a non-event. What was decisive was how prominent a position RBA governor Glenn Stevens would give to the developments in China in his statement.

Of course they were mentioned, but the major part of the statement was unchanged. It would therefore seem that the Australian central bankers see no need for a radical revaluation of the situation.

"So compared with the concerns of some market participants who feared the need for further monetary policy easing at least medium term, this was news that will support AUD at current levels", says Commerzbank.

Market Review September 1, 2015

The Reserve Bank of Australia left official interest rates unchanged at 2.00%, as widely expected, and for a fourth meeting after a month of turmoil on financial markets and amid rising concern about China's economy. The central bank maintained a neutral bias and noted that "further information on economic and financial conditions" are needed to determine the assessment of outlook and monetary policy.

Moreover, RBA governor Glenn Stevens noted China's economy continued to weaken, with commodity prices falling, partly because of increased supply from Australian producers. In addition, Mr Stevens repeated that he expected the Federal Reserve to begin hiking interest rates this year, without specifying the timing. AUD/USD remained in tight range and near the 0.7100 area. Released from Australia during the Asian session, Building Approvals rose 4.2% versus the estimated 2.9% and current account deficit widened sharply to AUD -19.0B versus the estimated AUD -15.9B.

Released during the Asian session this morning, New Zealand Overseas Trade Index rose 1.3% beating the estimated -1.9%, Japan Capital Spending rose 5.6% missing the estimated 9.0% and Final Manufacturing PMI came in at 51.7 versus the estimated 51.9.

Released during the early European session, Spanish Manufacturing PMI came in at 53.2 missing the estimated 53.9 and causing insignificant impact on the EUR/USD, which is currently trading higher than yesterday, near the 1.1270 area.

The main events for the day will be the German Unemployment Change, the United Kingdom Manufacturing PMI and Net Lending to Individuals, Eurostat Unemployment Rate, the Canadian GDP, and the United States ISM Manufacturing PMI and Final Manufacturing PMI.

Additional economic releases will be New Zealand GDT Price Index.

Data releases to monitor:

USD: Total Vehicle Sales, ISM Manufacturing Prices, IBD/TIPP Economic Optimism, Construction Spending, ISM Manufacturing PMI, Final Manufacturing PMI.

CAD: GDP.

EUR: Italian Manufacturing PMI, French Final Manufacturing PMI, German Unemployment Change, German Final Manufacturing PMI, Final Manufacturing PMI, Italian Monthly Unemployment Rate, Italian Quarterly Unemployment Rate, Unemployment Rate.

GBP: Manufacturing PMI, Net Lending to Individuals, M4 Money Supply, Mortgage Approvals.

NZD: GDT Price Index.

Trade Idea of the Day

USD/JPY

Currently the pair is trading at 120.43. Traders must monitor the 122.36 resistance level and the support level of 116.17 for possible breakouts. A possible scenario would be a movement towards the 120.00 support level where a break may lead to the 119.30 area. An alternative scenario could be a movement towards the 121.05 resistance level where a break could lead to the 121.65 area.

Financial News September 3, 2015

Downward revision to EU inflation outlook likely

On the inflation front, energy and food prices are now materially lower while the tradeweighted euro has strengthened. The ECB assumes unchanged exchange rate and oil prices in line with market futures reduce the inflation outlook this year to 0% and to 0.8% next, from 0.2% and 1.2% respectively, notes Barclays.

The ECB will release its updated quarterly macroeconomic forecasts, including inflation. The central bank projected the inflation rate at 0.3% in 2015, 1.5% in 2016 and 1.8% for 2017 in June.

"We think 2015 and 2016 projections will be revised down to take stock of changes in oil prices and the exchange rate since the last round of forecasts in June: since then, the euro has appreciated by around 6% and the price of Brent crude oil in USD is down around 30%", argues Barclays.

Euro at daily highs amid mixed Euro zone PMI data

Final European PMI readings came out mostly better-than-expected, but investors rather ignored the numbers.

The French services PMI for August came out at 50.6 and sharply worsened from July's 52.0, while the same gauge for Germany improved from 53.8 to 54.9, Markit advised on Thursday.

Moreover, Italy, Spain and euro zone in total delivered better-than-expected results for the reported period.

Later in the day, the European Central Bank (ECB) monetary policy decision is due, with the central bank expected to leave all three key benchmark rates unchanged. However, the presser will attract some attention as bank President Mario Draghi is likely to comment on the previous volatility and the current exchange rate of a stronger euro against most of the majors.

From the US dollar point of view, the ISM non-manufacturing gauge for August is due and should soften from July's 60.3 to 58.2. The numbers should not bring any volatility as traders are already pricing out the September rate hike, while the biggest focus remains on Friday's payrolls report.

Deterioration in Euro area monetary and financial conditions

Euro area financial market conditions have tightened since the last meeting of ECB. The euro reached an inflection point by mid July and since then it has appreciated on a REER basis by more than 6% (the NEER by over 7%).

Elevated volatility in energy and commodities, equities, and concerns about Chinese and EM growth prospects have worsened. As shown on above Figure, the in house Financial Conditions Index of Barclays has tightened quite significantly over the summer.

"However, we consider that the tightening in financial conditions experienced over the past three weeks could jeopardise these favourable trends, and are likely to be picked up by the ECB in their discussion. The main conclusions of QE Monitor updated in 27th August are similar to those we presented in July: monetary policy is gradually working its way through the economy, with ECB balance-sheet and market-based indicators mostly in the "green", but macroeconomic indicators are still lagging as the transmission to the real economy takes time", says Barclays in a report to its client.

Market Review September 3, 2015

The economic data from Australia was once again the main focus during the Asian session. More specifically, Australia's trade performance has improved marginally but still recorded its 16th consecutive monthly balance of payments deficit. The deficit in July narrowed to $2.46 billion, 19 per cent lower than the recently revised $3.05 billion in June. Moreover, the deficit beat market expectations, which had forecast a figure closer to $3.1 billion. Released also from Australia, Retail Sales declined by 0.1%, missing the median market forecast for an increase of 0.4%. AUD/USD is struggling to remain above the 0.7000 level and currently is trading near the 0.7020 area after dropping to the 0.6991 area during the Asian session.

With Chinese markets closed, the focus will be on the ECB policy decision and press conference, followed by the United States Unemployment Claims, Trade Balance and ISM Non-Manufacturing PMI.

The European Central Bank will hold its regular meeting and news conference today, and while no major policy changes are expected to be announced by ECB President Mario Draghi, he is likely to stress that further support in the future is possible and would probably prefer to note the positives rather than the negatives. Furthermore, ECB’s President Speech is expected to be dovish, which would support sentiment that so far has been a drag on risky assets.

Six months after the central bank began an unprecedented stimulus program, Eurozone growth has improved, Unemployment is edging lower, Inflation is back above zero, if just barely. There are signs that credit is flowing more easily and the crisis in Greece has faded, for now at least.

Since ECB’s last gathering in July, financial conditions have tightened, meaning liquidity in financial markets has dried up and the currency bloc's inflation outlook has worsened, following renewed strength in the euro and the continued weakness seen in oil prices. As a result, the ECB is likely to cut its inflation forecast for the year after its governing council meeting this week. Capital Economics expects the ECB to lower its inflation forecast by about 0.3 percent to about 0.0 percent this year, while the forecasts for 2016 and 2017 should be little changed at about 1.5 percent and 1.8 percent respectively.

Data releases to monitor:

USD: Challenger Job Cuts, Trade Balance, Unemployment Claims, Final Services PMI, ISM Non-Manufacturing PMI, Natural Gas Storage.

EUR: Spanish Services PMI, Italian Services PMI, French Final Services PMI, German Final Services PMI, Final Services PMI, Retail Sales, Spanish 10-y Bond Auction, French 10-y Bond Auction, Minimum Bid Rate, ECB Press Conference.

GBP: Services PMI.

Trade Idea of the Day

GBP/AUD

Currently the pair is trading at 2.1775. Traders must monitor the 2.2119 resistance level and the support level of 1.1395 for possible breakouts. A possible scenario would be a movement towards the 2.1842 resistance level where a break may lead to the 2.1940 area. An alternative scenario could be a movement towards the 2.1672 support level where a break could lead to the 2.1590 area.

Financial News September 4, 2015

CAD outperforms relative to NOK, AUD, NZD

Stronger than forecast retail sales and CPI inflation last month cushioned the fall of the CAD relative to other commodity currencies like the NOK, AUD and NZD. USD/CAD traded a high of 1.3354 and EUR/CAD vaulted 1.55.

"By end 2015, forecast for USD/CAD is 1.30", says Societe Generale.

CPI inflation accelerated from 1.0% yoy to 1.3% (core rose from 2.3% yoy to 2.4%). On a more sobering note, Q2 GDP contracted by 0.5% qoq annualised, marking a second quarterly contraction and a return to recession for the first time since Q1 09.

The Bank of Canada last cut interest rates by 25bp in July and may be inclined to pause this month. Further easing is not ruled out if oil prices keep falling and capex is scaled back.

ECB's QE extension likely in December

The ECB is likely to be under increased pressure to act in view of the notable downward revision of the inflation outlook as the central bank expects the inflation rate fall to 1.5% in 2016.

Moreover, the bank is unforeseeable concerned about China in particular and Ems in general. ECB's QE program is flexiable to adjust the macroeconomics imbalance in the economy; Commerzbank expects the QE volume be extended as early as December.

The extension of QE program turn out to be only moderate the increased flexibility in itself constitutes a EUR negative signal. It means that the ECB can react in a discretionary manner to inflation dampening events - e.g. a possible EUR appreciation.

"Therefore, if the market finds the ECB's flexibility claim to be credible, then EUR strength will not be possible. So all in all the collapse in EUR-USD of more than one cent that we saw yesterday in reaction to the ECB was more than justified. In the near future everything will depend on how the factors the ECB considers decisive will develop", says Commerzbank.

Market Review September 4, 2015

he European Central Bank president Mario Draghi delivered a clear signal that the ECB is ready to support its landmark asset-purchasing programme and promised additional quantitative easing, from the ECB, which has already pledged to buy EUR 1.1TN of mostly government bonds, buoyed equities and bonds across the region. While President Draghi was ambiguous on the detail, he left no doubt of just how seriously policymakers in Frankfurt were taking the signs of a slowdown in emerging markets. Their major concerns are regarding China, where the downturn threatens to slowdown the Eurozone’s recovery through trade links and the effect on confidence in financial markets around the world. Furthermore, ECB held interest rates at 0.05%, while downgraded its GDP and inflation forecasts over the next two years. The ECB also kept its marginal lending rate at 0.30% and left its facility rate unchanged at 0.20%.

Moreover, Mario Draghi lowered the central bank's inflation projections for the remainder of 2015 to 0.1% from the previous estimate of 0.3%. The ECB has also lowered inflation projections for 2016 and 2017 from 1.5% and 1.8% to 1.1% and 1.7% respectively. In addition, the ECB reduced GDP projections over the period predicting that it will remain below 2% through the end of 2017. EUR/USD tumbled by nearly 1% yesterday, and traded between a range of 1.1087 and 1.1243 before settling at 1.1140 area, where is currently trading.

Regarding the migrant crisis in Europe, president Draghi said that “the European Central Bank has no role to play” while he added that "Really any European should be horrified by the tragic loss of life happening on our doorstep."

Released during the Asian session this morning, Japan labour cash earnings rose 0.6% missing the estimated 2.1%. USD JPY hit fresh lows by reaching as low as the 119.10 level and currently is trading near the 119.22 area.

Released during the early European session, German Factory Orders declined -1.4% versus the estimated -0.5% while Swiss Consumer Price Index (CPI) declined -0.2% compared to the previous of -0.6%.

The main event for the day will be the United States employment report. Unemployment rate is expected to drop to 5.2% while Average hourly earnings are expected to grow 0.2% and Non-Farm Employment Change is estimated to remain near 215K.

Additional economic releases will be the Canadian Employment Change, Unemployment Rate, Labour Productivity and Ivey PMI.

Data releases to monitor:

USD: FOMC Member Lacker speech, Average Hourly Earnings, Non-Farm Employment Change, Unemployment Rate.

EUR: Retail PMI.

CAD: Employment Change, Unemployment Rate, Labour Productivity, Ivey PMI.

Trade Idea of the Day

EUR/AUD

Currently the pair is trading at 1.5975. Traders must monitor the 1.6150 resistance level and the support level of 1.5596 for possible breakouts. A possible scenario would be a movement towards the 1.6030 resistance level where a break may lead to the 1.6080 area. An alternative scenario could be a movement towards the 1.5872 support level where a break could lead to the 1.5815 area.

Financial News September 8, 2015

Chinas trade data remained soft in August

China's trade figures remained soft in August. The exports dropped by 5.5% yoy in August, compared with -8.3% in the prior month and market expectation of -6.6%. Imports surprised the market on the downside by a large margin, slashing 13.8% yoy, down from -8.1% in July.

Shipments to the US dropped by 1.0% in August while the exports into the EU fell by 7.5%. On a volume basis, China's imports of iron ore and copper fell by 0.2% and 8.1% YTD respectively, while imports of crude oil picked up by 9.8% in the first eight months of this year. As imports underperformed, China registered another huge monthly trade surplus at USD60.2bn in August, very close to the record high of USD60.6bn in February 2015.

Naturally, the focus is on the divergence between trade surplus and foreign reserves. China has accumulated USD746bn trade surplus since January 2014, while the foreign reserves dropped by USD264bn during the same period, notes Commerzbank. To some extent, this could suggest that large amount of money is leaking from the economy.

Beyond high short-term volatility, Australian labour market is quite firm

Australia's July labour market report surprised in just about every aspect, with large moves in all key measures. The August report is expected to reverse a substantial part of these changes, as sample rotation had a great deal to do with the erratic moves.

"Employment, which surged 38.5k (equivalent to an annualised rate of 4.0%), is likely to have declined by a 12k decrease, which would leave the Q4 figure on course for an annualised gain of 1.9%. August's employment level would be up 2.0% yoy, down from 2.1% in July", says Societe Generale.

Despite the decline in employment, unemployment is expected to have eased as well, as part of the 79k surge in the measured labour force reverses. Note that the underlying civil population 15-years and older is growing at just 16k per month at current rates of participation, so this was really an expansion of epic proportions.

The participation rate would thus reverse 0.25pp of the 0.32pp increase in July. This would allow the unemployment rate to decline from 6.3% (6.349% unrounded) to 6.2%, supporting the view that the trend in unemployment has indeed stabilised.

Market Review September 8, 2015

During the Asian session this morning, data from China showed worsening in foreign trade again in August. Both exports and imports contracted more than expected and raised much doubt on the health of the Chinese economy. Exports declined -6.1% while imports declined -14.3%. Overall trade contracted -9.7%. Trade surplus widened to USD 57.8b. In addition, China’s foreign exchange reserves dropped USD -93.9b in August to USD 3.56T. Moreover, Customs said in a statement that China’s exports would continue to face “relatively big pressure” in the fourth quarter.

The weak trade data mark the latest soft figures from the Chinese economy. Indicators of industrial production, financial services, factory, and real estate investment point to slowing growth in the second half of the year, raising questions about China’s ability to meet its annual growth target of about 7% and reducing investor confidence *********. Furthermore, last month devaluation of the Yuan aimed at helping its struggling exporters by reducing the price that buyers pay in foreign markets. The economic data from China will be closely monitored as PBoC may surprise global markets and investors with further stimulus, taking into consideration the latest data

Released from Japan during the session, Current Account came in at 1.32T beating the estimated 1.25T, Q2 GDP was finalized at -0.3% versus the estimated -0.4%, bank lending rose 2.% compared to the previous pf 2.6% and Final GDP Price Index rose 1.5% missing the estimated 1.6%. USD/JPY dropped to the 118.85 area during the Asian session, but didn’t remain low for long as it rose to the 119.85 area during the early European session.

Released during the early European session, Swiss Unemployment Rate rose 3.3%, as widely expected, causing insignificant impact on the Swiss Franc. German Trade Balance came in at 22.8B beating the estimated 21.8B while French Trade Balance came in at -3.3B versus the estimated -3.2B and General Budget Outcome came in at -79.8B compared to the Previous of -58.5B. EUR/USD is trading slightly higher today and above the 1.1200 level.

The main events for the day will be the Eurostat Revised GDP and the United States Consumer Credit.

Data releases to monitor:

USD: NFIB Small Business Index, Labour Market Conditions Index, Consumer Credit.

EUR: Revised GDP.

GBP: 30-y Bond Auction.

Trade Idea of the Day

EUR/JPY

Currently the pair is trading at 134.15. Traders must monitor the 135.80 resistance level and the support level of 132.20 for possible breakouts. A possible scenario would be a movement towards the 134.40 resistance level where a break may lead to the 134.90 area. An alternative scenario could be a movement below the support level of 133.90 with target the 133.20 area.

Financial News September 9, 2015

Is BOC waiting for the Fed?

The sharp rise in oil prices off their lows over the past 10 days, better-than-expected Q2 GDP print, a second trade balance beat driven by strong non-energy exports likely reduces the risks of a September cut, as noted above.

"Combined with belief the Fed will begin normalizing this year policy divergence will continue to support our long USD/CAD stance. The high correlation between Canadian and US rates suggests that a Fed hike could lead to an unwanted tightening of Canadian financial conditions", says Bank of America.

A relatively neutral statement tone as a result of these developments would likely elicit knee-jerk CAD strength with USD/CAD still trading close to its recent highs despite the rebound in oil prices.

But, this move is faded as oil prices are still below the BoC's forecast assumptions and outlook for a strong pickup in non-energy exports and business investment is still quite optimistic, supporting our October cut call.

"So even if the CAD weakens, the net effect will be more muted by the rise in Canadian rates, increasing the BoC's incentive to ease further. Bottom line, whether the Fed hikes in September or later, policy divergence still moves strongly in the dollar's favor as the BoC hikes again, supporting our higher USD/CAD conviction. We would fade any C$ strength on the back of a more neutral statement and no cut", added Bank of America.

CNB intervened by c.EUR 4.3bn during July-August

The Czech National Bank published FX reserve data for August and intervention data for July yesterday. The country's FX reserves were up by a sharp $5.4bn in August and the CB disclosed that it had intervened by around EUR 1bn in July.

CNB had disclosed earlier that it had intervened once in July, but it did not disclose the amount nor whether it had intervened again in August. The data indicates that CNB now has to intervene regularly.

"A part of the increase in USD reserves can be explained by the increase in the EUR-USD exchange rate in late August; adjusting for this, preliminary calculations still suggest that CNB had to intervene by a larger EUR 3.3bn-3.5bn in August and bring the EUR-CZK exchange rate towards the 27.00 official floor", argues Commerzbank.

EUR-CZK rose in trading yesterday to 27.05 levels, opposite the expected direction of movement - this was probably because CNB intervened pre-emptively to ward off unwanted speculation on the back of the data.

Market Review September 9, 2015

Prime Minister Shinzo Abe will remain Liberal Democratic Party leader for a second three-year term after being re-elected on Tuesday. Prime Minister Abe pledged to cut corporate tax from the current 35% next year to more effective corporate tax rate, which would be lower at least by 3.3%. He also pledged to "go beyond that if possible", by reducing the rate down into the twenties over several years, bringing it to a level that compares favourably in the international context. Mr. Abe also pledged to push forward with his plan to permit Japan’s military to be dispatched to conflicts abroad, which has been banned for 70 years under the pacifist Constitution. Legislation allowing that change is expected to be enacted next week, despite rare large-scale protests across the country. Released from Japan during the Asian session, M2 Money Stock rose 4.2% versus the estimated 4.1%, Consumer Confidence came in at 41.7 beating the estimated 40.6 and Prelim Machine Tool Orders declined -16.5% versus the previous rising of 1.7%. USD/JPY is currently trading near the 120.55 area after dropping to the 118.85 area yesterday.

Elsewhere, RBA deputy Governor Philip Lowe said that Australian people should not panic about the economic turmoil affecting Australia lately, as the Australian economy is in a period of transition that naturally comes with its own challenges. He added that Australia has the ‘flexibility’ to deal with those challenges, without going in to a recession. He also noted that "investment climate would be improved through a strong focus by both business and government on innovation, productivity, human capital and entrepreneurship." Deputy Governor Lowe commented that China's recent stock market crash "has led some to ponder the general direction of Chinese policy” and "this is an issue that will bear close watching over the months ahead." Released from Australia during the Asian session, Westpac Consumer Sentiment dropped -5.6% while Home Loans rose 0.3% missing the estimated 0.8%. AUD/USD is currently trading near the 0.7040 area with the next resistance seen at the 0.7087 level.

The main events for the day will be the BoC rate decision and statement, where BoC is expected to keep policy rate unchanged at 0.50%. Moreover, United Kingdom Manufacturing Production and Trading Balance will be also monitored

Additional economic releases will be the Canadian Building Permits and Housing Starts, the United Kingdom Industrial Production, NIESR GDP Estimate and the United States JOLTS Job Openings.

Data releases to monitor:

USD: JOLTS Job Opening, 10-y Bond Auction.

EUR: German 10-y Bond Auction.

AUD: RBA Assist Gov Debelle speech.

GBP: Manufacturing Production, Trade Balance, Industrial Production, NIESR GDP Estimate.

CAD: Housing Starts, Building Permits, BOC Rate Statement, Overnight Rate.

Trade Idea of the Day

USD/CAD

Currently the pair is trading at 1.3214. Traders must monitor the 1.3323 resistance level and the support level of 1.3117 for possible breakouts. A possible scenario would be a movement towards the 1.3245 resistance level where a break may lead to the 1.3280 area. An alternative scenario could be a rebound below the 1.3190 level, which would lead to a break of 1.3180 with next target the 1.3160 area.

Financial News September 10, 2015

BoE to focus on strengthening domestic economy

The U.K PMI continued its fall in August, inflation remains stubbornly close to zero percent, industrial production is limping and the trade deficit is expanding. In addition there are the external developments surrounding China and the Emerging Markets.

The resulting uncertainty and increased volatility on the markets will cause some MPC members to wait and see as well as considering the strength of the domestic economy as a kind of buffer against unfavourable external impacts.

"Moreover the BoE cannot completely ignore the Fed's and ECB's approach: the Fed is likely to wait until December before hiking its key rate and the ECB signalled that in the foreseeable future its monetary policy will become even more expansionary. If the BoE now seems like a central bank in favour of hiking interest rates soon it risks the appreciation of the pound which in return is going to put pressure on the inflation rate and make it more difficult to reach the inflation target", says Commerzbank.

So everything all told the BoE is likely to stick to its approach and underline the strength of the domestic economy while also sounding concerned about external developments. Therefore, Ian McCafferty, a MPC member of BoE, is unlikely to find any supporters for vote in favour of a rate hike.

Market Review September 10, 2015

The Reserve Bank of New Zealand cut its benchmark lending rate by 25bp from 3.00 percent to 2.75 percent. The reduction in the Official Cash Rate (OCR) was seen as necessary by the RBNZ in order to keep future average CPI inflation near the 2 percent target. This highly anticipated policy decision was the third consecutive adjustment since the central bank began easing this year. Moreover, the central bank maintained a dovish stance and signalled in its statement that "some further easing in the OCR seems likely." Furthermore, RBNZ said that the global outlook was "revised down" due to weaker activity in developing economies particularly in China and East Asia. The New Zealand Dollar declined more than 1.5 percent (over 95 pips) versus the US Dollar after the RBNZ decision.

Elsewhere, Australia’s labour market, yet again, has exceeded expectations in August. Over the month employment increased by 17,400, smashing the median market forecast for a gain of 5,200. Moreover, Full time jobs rose 11.5k while part-time jobs rose 5.9k. Unemployment rate dropped to 6.2% as expected while participation rate dropped from 65.1% to 65.0%. Despite the better-than-expected economic figures, AUD/USD was dragged down by the RBNZ rate cut decision, which pushed the pair down to the 0.6945 area. AUD/USD was somewhat recovered ad is currently trading near the 0.7028 area.

Released during the Asian session, Japan’s Core Machinery Orders declined -3.6% versus the estimated 3.4%, while PPI dropped -3.6% versus the estimated -3.2%. USD/JPY is currently trading near the 120.78 area.

Released from China during the Asian session, Consumer Price Index (CPI) rose 2.0% beating the estimated 1.9% while PPI declined -5.9% versus the estimated -5.6%.

Released during the early European session, French Final Non-Farm Payrolls rose 0.2% while French Industrial Production dropped -0.8% missing the estimated 0.3%. EUR/USD is currently trading near the 1.1200 area with the next resistance seen at the 1.1244 level.

The main events for the day will be the BOE Official Bank Rate, Monetary Policy Summary, MPC Official Bank Rate Votes, MPC Rate Statement and the United States Unemployment Claims.

Additional economic releases will be the Canadian NHPI, BOE Asset Purchase Facility and MPC Asset Purchase Facility Votes.

View our full economic calendar for a daily roundup of major economic events.

Data releases to monitor:

USD: Unemployment Claims, Import Prices, Wholesale Inventories, Natural Gas Storage, Crude Oil Inventories, 30-y Bond Auction.

CAD: NHPI, Capacity Utilization Rate.

GBP: MPC Official Bank Rate Votes, Official Bank Rate, Asset Purchase Facility, MPC Asset Purchase Facility Votes, MPC Rate Statement, Monetary Policy Summary.

Trade Idea of the Day

AUD/USD

Currently the pair is trading at 0.7047. Traders must monitor the 0.7205 resistance level and the support level of 0.6908 for possible breakouts. A possible scenario would be a movement towards the 0.7069 resistance level where a break may lead to the 0.7110 area. An alternative scenario could be movement towards the 0.6980 support level where a break could lead to the 0.6940 area.

Financial News September 11, 2015

Central bank of Russia to be on hold today

Consensus expectations are for rates to remain on hold at 11% during today's interest rate meeting. The Russian central bank (CBR) would like to cut rates, given that month on month CPI inflation trended lower recently.

However RUB's decline towards levels last seen during the crisis period in late January complicates matters. A rate cut today would invite further speculation against RUB, which in an environment of deteriorating sentiment towards EM is hardly desirable.

Not only is this an issue, but FX induced pass through inflation could rear its head once again. Interestingly, markets are now starting to price in a hiking cycle, but we think markets are overdoing it.

"Russia, despite its numerous problems, boasts a healthy current account surplus, so it should not be affected in the same way as other emerging markets when the Fed normalizes rates in the coming months. Nonetheless, consistent oil price declines mean that USD-RUB remains a buy on dips for the moment", says Commerzbank.

Weak inflation outlook could bring USD under pressure today

Next week will bring the Fed's rate decision. It is still quite unclear what market momentum the meeting is likely to create. Even if the market has given up on the idea of a rate hike next week the all-important question for the US dollar is how optimistic the Fed will sound as regards the future rate path.

The reason behind the market's much more cautious rate expectations is the more pessimistic inflation outlook. The Fed had originally given the expectation that inflation was likely to rise notably soon as the reason for its plans to start the rate hike cycle. The market does not yet expect that and as a result expects a much slower rise of interest rates.

As a result some movement might be seen in the USD exchange rates today, as there are two events on the calendar for today, producer prices and the University of Michigan's consumer poll, that might provide new information regarding expected price developments.

According to Commerzbank, what is of particular interest are the long term inflation expectations the University of Michigan compiles. The Fed uses these poll-based inflation expectations to judge whether inflation expectations are still anchored or not .

If the expectations record a surprise rise to above 2.7% this is likely to be seen as a signal that the Fed will not correct its outlook notably lower in September and therefore as a signal that first rate rises are due.

If on the other hand the poll-based inflation expectations fall the market is likely to feel confirmed in its doubts of the inflation outlook and trade the US dollar weaker, as market based inflation expectations seem to have eased compared with one month ago.

As at -0.3% mom, a weaker result for producer prices is expected than consensus (-0.1%) there is a lot to suggest that yesterday's USD weakness will continue today. The next psychological resistance in EUR-USD is located at around 1.1450.

Market Review September 11, 2015

Investors are turning their attention to the Federal Reserve, after the Bank of England left interest rates unchanged yesterday, saying that the threat to the world economy from China’s stock-market slump did not signal a slowdown for Britain. The Monetary Policy Committee (MPC) voted 8-1 to keep rates unchanged at a record-low of 0.5%, as widely expected. BOE remains on track to raise its benchmark interest rate next year, with rate setters agreed that signs of a sharper than expected slowdown in China and turbulence in global financial markets have not as yet altered the outlook for the United Kingdom economy. GBP/USD raised sharply on the news, and currently is trading near the 1.5445 area after the recent decline to the 1.5165 area.

The focus is turned now on Federal Reserve rate decisions, after the BOE decided to stand firm and leave rates unchanged. For the past year, the Federal Reserve's policy committee, the Federal Open Market Committee (FOMC), has described the timing of its much-anticipated move to raise interest rates as "data dependent, but with the latest developments in China and the global markets in general, the scenario for rising the rates is seen as a uncertain move. Moreover, IMF has warned that "monetary policy must stay accommodative to prevent real interest rates from rising prematurely".

Released during the Asian session, Japan BSI Manufacturing Index came in at 11.0 versus the estimated -1.9 and New Zealand FPI declined -0.5% compared to the previous of 0.6%.

Released during the early European session, German Final CPI remained flat at 0.0% while German WPI declined -0.8% versus the estimated 0.2%. EUR/USD is currently trading near the 1.1300 area after breaking the 1.1245 resistance.

The main events for the day will be the United States Prelim UoM Consumer Sentiment, PPI and Core PPI.

Additional economic releases will be the United Kingdom Construction Output, Consumer Inflation Expectations, MPC Member Forbes speech and ECOFIN Meetings.

Data releases to monitor:

USD: Core PPI, PPI, Prelim UoM Consumer Sentiment, Prelim UoM Inflation Expectations, Federal Budget Balance.

GBP: Construction Output, Consumer Inflation Expectations, MPC Member Forbes speech.

EUR: ECOFIN Meetings, Italian Industrial Production.

Trade Idea of the Day

EUR/TRY

Currently the pair is trading at 3.4327. Traders must monitor the 3.4700 resistance level and the support level of 3.3944 for possible breakouts. A possible scenario would be a movement towards the 3.4415 resistance level where a break may lead to the 3.4540 area and in long term, it may reach the 3.4700 area. An alternative scenario could be a break below the 3.4240 level, which may lead to the 3.4120 area and further to the 3.4000 area.

Financial News September 14, 2015

EUR profits from calmer EM markets

During the course of last week EUR-USD slowly but surely crept from levels around 1.1150 to levels at now roughly 1.1350. A reduction in EM risks would now have to be seen as a EUR positive signal.

And indeed the EUR appreciation was accompanied by the EM markets becoming a little calmer. The exchange rates of BRL and TRY have at least stabilised, ZAR was even able to recover slightly and also the CDS spreads of most EM currencies have fallen slightly.

ECB President Mario Draghi had stressed the EM risks at the last ECB press conference and suggested an interpretation according to which the ECB might extend its QE programme should these risks deteriorate.

In particular in comparison with the Fed, whose representatives had presented themselves as totally relaxed about EM risks, the European central bankers seemed much more prepared to react to EM risks.

"One had to assume that a potential EM crisis would have affected the ECB's monetary policy far more than the Fed's monetary policy. Therefore it would have put much more pressure on the euro rather than the dollar. The most recent development now suggests that this scenario will not arise which is therefore a EUR positive signal", says Commerzbank.

Poland to have temporary relief on CHF mortgage conversion

The Polish zloty had a better time last week, with EUR-PLN dropping from 4.24 early last week to below 4.21 levels by the end of the week, PLN outperformed HUF over this period too.

One PLN-supportive development was the abandonment of the infamous CHF mortgage conversion bill which ruling party PO had presented to parliament in the summer.

The proposal initially was that CHF borrowers who were 'under water' could convert their mortgages to local currency at the historical exchange rate, and banks would share 50% of the FX loss, later, this bill was amended by Opposition pressure to increase the banks' share of the loss to 90%.

This bill has been a source of major concern for the Polish banking sector. But now, the parliament's public finance committee has ruled that it will not push the bill through because of the many "constitutional doubts" it involves. CHF conversion legislation will again be taken up only after the new government is in place in late October.

"This is only temporary relief, though, Opposition PiS is leading in all major polls and is unlikely to forget this issue. If PiS forms the government, a harsher version of the same FX conversion bill can be expected, with larger loss implications for banks, to be launched", says Commerzbank.

Market Review September 14, 2015

Minor market movement was noticed during the Asian session this morning as the session was relatively quiet with few economic releases. Released from Japan, Revised Industrial Production declined -0.8% versus the estimated -0.6% while Tertiary Industry Activity rose 0.2%. USD/JPY has turned south during the Asian session opening. The pair is currently trading near the 120.20 area with the key resistance seen at the 120.80 level.

Global markets are relatively noiseless with focus turned mainly on the United States FOMC rate decision. The Fed may raise policy interest rate from 0% for first time since 2008 this week, but China’s economic slowdown and deflation looming ********* are seen as a warning signal that is not the right time for a rate hike.

Elsewhere, the Reserve Bank of Australia will release meeting minutes on Tuesday while the Bank of Japan will release its Monetary Policy Statement on the same day. Moreover, the Swiss National Bank will have its Monetary Policy Assessment on Thursday. Among these central banks, RBA is the only central bank expected to proceed with further interest rate cut, once again before the end of the year. Furthermore, SNB and BoJ are expected to keep monetary policies unchanged.

Released during the early European session, Swiss Producer Price Index (PPI) declined -0.7% versus the estimated -0.4% and Retail Sales dropped -0.1% missing the estimated 1.5%. USD/CHF is currently trading near the 0.9700 area with the next key resistance seen at the 0.9820 level.

The economic calendar for the day is quite empty. Eurostat will releases the European Industrial Production, which is estimated to rise 0.3% compared to the previous of -0.4% decline.

Data releases to monitor:

USD: Core PPI, PPI, Prelim UoM Consumer Sentiment, Prelim UoM Inflation Expectations, Federal Budget Balance.

GBP: Construction Output, Consumer Inflation Expectations, MPC Member Forbes speech.

EUR: ECOFIN Meetings, Italian Industrial Production.

Trade Idea of the Day

EUR/AUD

Currently the pair is trading at 1.6006. Traders must monitor the 1.6173 resistance level and the support level of 1.5773 for possible breakouts. A possible scenario would be a movement towards the 1.6088 resistance level where a break may lead to the 1.6140 area. An alternative scenario could be a break below the 1.5974 level, where a break may lead to the 1.5920 area.