11th September 2015 Currency markets, news and analysis

Forex Market Commentary  

Markets close on high volatility head of 17th FOMC.

Starting first with Euro land there are 2 considerations that need to be viewed. on the one hand the ECB has been sending advisory signals to the market that it is willing to implement further monetary support by expanding its own version of Q.E because weaker crude oil prices translates into lower prospects for inflation across the Euro Zone. However, the ECB stands by it's conviction for moderately positive GDP growth in 2015 and 2016 GDP (at 1.4% and 1.6% respectively) and couples with recent falling energy prices with falling inflation, that spells out a strong underlying current for low-inflationary economic growth across the EU. Strong growth attracts investment and for that reason the EUR/ USD ended this week as strong bid at the 1.13. But, placing this favorable reporting within the context of the global economy and in juxtaposition with US interest rates, the longer term outlook is for a continued divergence in interest rate curves rather than convergence between the two economic blocks. The long-term bearish outlook for EUR/USD may come back sooner if the FOMC 17th meetings decide to lift the lid off the zero interest rate policy in the US markets. 

For the moment in the futures markets recent COT data illustrates large specs to be LONG 75715  VS SHORT 156,956 open interest. Futures data points that much of the weaker shorts have been cleared out of the market the last 3 weeks due to the currency crisis sparked off by the Chinese Yuan devaluation. Therefore the EUR/ USD has seen much of it's rise since early August due to short covering plus flight to safety to Bunds at the height of the China crisis. Currently perched at 1.13 the EUR/ USD needs to close successfully above 1.14 to mark any serious assault on the strong resistance at 1.17. Should the FOMC rule in favor of a hike expect massive short action on the EUR/ USD to push the pair to the 1.08 and even the critical 1.05 barrier. On the other hand should the FOMC dismay all the pundits and rule in favor of no action given that inflation has lowered to a tepid 1.2% whilst full employment  terms have been met at 5.1% unemployment, then any bounce to the 1.17 can trigger buy stops to push fund buying into the 1.17 to 1.20 region. this latter scenario being highly unlikely nevertheless must be considered. USDX should climg to the 98 given a hawkish tone of the FOMC coupled by positive action and the Dow could temporarily swoon 2000 even 3000 points when the era of zero interest comes to an end or on the contrary should the FOMC take no action USDX could slip to 93 and the Dow surge 2000 points. In any case we are looking for decisiveness and breakout next week. Crude oil is looking weak and could drift back down to 40 Dollars and bullion is weaker for a third consecutive week with gold losing 1.5% to close at 1104 on the New York close. With equities the SSE composite, Nikkei and Hang Seng all had a quiet day lifting sentiment in Europe and USA.




Important Indicators:

Fixed Income Markets: US Federal Reserve -  +0.25%  
ECB Base rate 0.050 %
Chinese interest rate PBC     China     4.60 %
Japanese interest rate (BoJ)    0.10 %

Important moving averages: 

USDX  below the 50 day m.at 96.5.
EUR/ USD above 50 day m.a at 1.11
Crude Oil WTI at 50 day m.a. at 46
Gold at 50 day m.a. at 1130
US - 30 DAY FED FUND at 50 day m.a. at 99.77
US - 10 YEAR T-NOTES above 50 day m.a at 126.5

In speaking of moving averages; markets are not rational and daily price action volatile, but in the longer run trader expectation and negative sentiment can be collectively summed up through the 50 day moving average. Always look to support and resistance band lines as the key to understanding in the long and short term where prices are converging. Professional technical traders use 50 day and 200 day medium and slow moving averages as fundamental cornerstones for interpreting the direction of price action.

USDX

US Dollar
95.211     -0.291 -0.37% 
Support 94.768     Resistance 95.888
Forward 1 year - 95.824s.

EUR/USD
1.13370     +0.00575 +0.51%
Support   1.12173          Resistance 1.14093
Forward 1 year - 1.14350s.  

Crude Oil  WTI

45.28     -1.16 -2.51%

Support 43.17  Resistance  46.61
Forward 1 year - 50.28s.

Gold

1107.835     -3.755 -0.34%

Support  1,090.2    Resistance 1,118.6
Forward 1 year  -  1,107.9s.

Pieter Bergli - DeLoren Trust Holdings

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