Dow Jones Newsletter 17th Aug
The pair has rebounded on its support and should post a further advance as the RSI is well directed. Suggests long positions above 1.4350, with targets at 1.4450 and 1.4480. The downside penetration of 1.4350 will call for a slide towards 1.4310 and 1.4275.WEDNESDAY, AUGUST 17, 2011 ifcmarkets INTRADAY SNAPSHOT EUR/USD GBP/USD The pair stands above its support and remains on the upside. Suggests long positions above 1.6395, with 1.6480 and 1.6540 in sight. The downside breakout of 1.6395 will open the way to 1.6360 and 1.6325. USD/JPY The pair stands below its resistance and remains under pressure. Suggests short positions below 77.00, with 76.50 and 76.30 as next targets. The upside penetration of 77.00 will call for a rebound towards 77.20 and 77.50. AUD/USD The RSI is well directed, the pair is rebounding on its support and should post further advance. Suggests long positions above 1.0405, with targets at 1.0515 and 1.0630 in extension. Below 1.0405 look for further downside, with 1.0350 and 1.0250 as targets. ifcmarkets FOCUS The Swiss National Bank did the right thing. Pegging the Swiss franc to the euro looked like a bad idea when it was initially mooted last week. However, the whole proposal looked even worse after the disappointing summit meeting between French and German leaders Tuesday put the future of the euro even more in doubt. Sure, life for the SNB is not going to be easy. The central bank's plan to flood the market with even more liquidity, taking the total to CHF200 billion from CHF120 billion, and to employ foreign exchange swaps will probably have limited ability to halt the franc's rise. Also, with the euro-zone debt crisis still dragging on, the Swiss currency's safe-haven status will hardly be dented. The best the SNB can hope is that its myriad policies, along with the continued threat of direct market intervention, helps to at least slow the franc's rally. Certainly, pegging the franc to the euro was hardly a plausible alternative. Recent speculation that Angela Merkel and Nicolas Sarkozy would underpin the survival of the euro--either with plans for a common euro-zone bond, in which all 17 member countries would be involved, or by expanding the size of emergency funding for peripheral debtors, through the EFSF--proved completely unfounded. Despite a list of empty pledges about their commitment to the single currency, the two leaders appeared to put even more fiscal pressure on peripheral economies and left any immediate funding to prevent default firmly in the hands of the European Central Bank. With her political popularity at home continuing to fall and with German as well Dutch support for the euro continuing to erode, Merkel's reluctance to agree to anything other than strong rhetoric at the meeting was hardly surprising. But the whole episode does cast an even deeper shadow over the future of the euro. In addition to fear that political support is waning even further, the single currency will suffer from uncertainty over how much more emergency funding the ECB will have to provide as it waits for the EFSF to get up and running as planned next month--and also how long the EFSF itself will be able stave off a default. For the moment, ECB support is keeping yields on peripheral debt stable but signs of growing doubts among investors are already evident in the credit default swap market. There, the price of insuring these bonds is on its way up again. Sure, the ECB may be still buying time for politicians to put together a plan for saving the euro. But, as time goes by, the chances of such a plan emerging are diminishing and the future of the single currency is becoming even more doubtful. And for the SNB, their failure to peg the franc to the euro at this stage could soon start to look even more like a lucky escape. EUROPE The Swiss franc strengthened against other major currencies during European trading Wednesday after the Swiss National Bank held fire on pegging the currency to the euro. The SNB announced another set of liquidity measures to curb franc strength, but the lack of a peg disappointed many in the market, which had been gearing up for one ever since central bank officials refused last week to rule it out. That saw the franc jump 2.5% against the euro and just over 2% against the dollar in early European trading. The Hungarian forint, which is ultra-sensitive to movements in the franc, due to the country's massive external and public debt denominated in the currency, also appeared to struggle. Strategists forecast further franc strength to come, after the euro slipped to CHF1.1398 from a three-week high of CHF1.1549, having sank to near-parity last week. "There is scope in the short term for the euro to fade down to CHF1.05 against the franc. It's only when we get to that level that we will see more drastic policies," said Chris Walker, currency strategist at UBS in London. The euro too lost ground against the dollar in the immediate aftermath of the SNB announcement but then rebounded to trade as high as $1.4454 against the dollar as the greenback appeared to fall out of favor and equities bounced off their lows. Dollar weakness helped sterling to recover its heavy losses following poor unemployment data, which showed a rising number of people claiming jobless benefits, and Bank of England minutes that revealed a unanimous call to keep U.K. interest rates on hold in August. Previous meetings had shown a minority of voting members in favour of a rate hike. The pound fell to $1.6348 against the dollar while the euro rose to near GBP0.88 following the double dose of news, but sterling is now trading back near the day's highs against the dollar. Strategists said both the minutes and the data implied a darkening economic outlook and a greater chance that U.K. interest rates will stay on hold for longer. ASIA Weak share prices prompted investors to sell the euro against the dollar and the yen Wednesday in Asia, but only slightly, as they took a wait-and-see stance before any possible moves by the Swiss authorities to weaken the franc. While overall trade flows in Tokyo remained thin with many investors on summer leave, the small number of market participants took a cue from weak Japanese share prices to sell the common unit, traders said. As of 0450 GMT, the Nikkei 225 Stock Average was down 0.5%, and the euro was at $1.4405 and was Y110.45 from $1.4407 and Y110.68 in New York Tuesday. The declines were small and within the margin of position adjustments, traders said, adding they are monitoring to see if the Swiss authorities indeed take steps to counter the rising franc. The Swiss government and Swiss National Bank are expected to make announcements at any time. "It's hard to speculate what steps the Swiss authorities will decide to introduce. The euro is difficult to trade at least before their announcements," said Satoshi Tate, a senior dealer at Mizuho Corporate Bank. J.P. Morgan strategist Junya Tanase said the house expects the SNB may pump liquidity into the market. Pegging the franc to the euro, which some traders are anticipating, has a low chance of becoming reality, he added. WORLD The euro fell Tuesday after French and German leaders concluded a much-anticipated meeting without throwing their support behind the creation of euro-zone bonds, which some traders view as key to sorting out the region's troubled finances. German Chancellor Angela Merkel and French President Nicolas Sarkozy detailed plans to form a euro-zone economic council, but denounced the idea of euro-zone bonds as potentially harmful to Europe's healthiest economies. They called for spending cuts and other long-term measures to bring down debt levels, but offered no immediate solutions. Germany and France, the euro-zone's two biggest economies, are expected to lead efforts to contain any damage caused by debt in Italy, Spain and other countries. However, the lack of a concrete proposal from Tuesday's meeting, plus data showing German economic growth slowing, dismayed traders. Germany's gross domestic product rose only 0.1% from the previous quarter, and by 2.7% in annual terms. "The (Sarkozy-Merkel) press conference was more focused on long-term governance issues and new taxes rather than measures to spur growth - as a result, there has been some disappointment," said Aroop Chatterjee, foreign exchange strategist at Barclays Capital in New York. "The market is also responding to the fact that euro bonds ... will only be a last resort."
