Dow Jones Newsletter 31th Aug
The broader EUR uptrend remains intact while support at 1.4327 holds. Keeping Tuesday's low at 1.4385 intact would maintain the underlying EUR bull tone, and a break above 1.4466 would suggest a return to Tuesday's marginal high at 1.4550 is on the cards. Only a setback below 1.4327 would concern EUR bulls, exposing 1.4290 and 1.4258.WEDNESDAY, AUGUST 31, 2011 ifcmarkets INTRADAY SNAPSHOT EUR/USD GBP/USD A recovery is underway towards the 1.6380 area, as GBP bulls look to protect last week's 1.6210 reaction low. Keeping Tuesday's low at 1.6256 intact would enhance the rally's prospects, and a break above 1.6380 would open 1.6416 and the Aug. 29 high at 1.6453. Only a reversal below 1.6210 would put GBP bears in control, exposing 1.6114. USD/JPY Support at 76.47 is braced for renewed USD bear pressure. The Aug. 19 all-time low at 75.94 is looking vulnerable too, as the Aug. 25 reaction high at 77.70 is expected to become a confirmed bull failure. A recovery above 76.76 is required to provide respite, but corrective upside risk is limited to 77.02. AUD/USD The short-term uptrend is on course for meeting the 1.0910 target area. Resistance at Tuesday's 1.0722 high is expected to yield, prompting an uptrend extension to 1.0800 and towards the 1.0910 target area - the latter comprising a wave equality target and a 1.618 Fibonacci extension target. Corrective weakness is limited to the 1.0545 area, which is protected by 1.0600. ifcmarkets FOCUS Any parent of young children will recognise the behavior pattern. Deny the little ones a long-expected treat for whatever reason, shortage of time, money or simple human kindness, and they'll spend the next few days pathetically alert to any sign, real or imagined, that you might recant and hand it over anyway. In this vein Papa Bernanke denied the capital markets' expectant toddlers what they'd been excitedly expecting late last week. In his Jackson Hole speech last Friday the Fed chief flatly refused to guarantee another round of quantitative easing. He'd already given them one treat earlier in August, by all-but promising that U.S. base rates would remain at their record lows for two more years. They should enjoy that like good children and not expect any more for now. No wonder then that the dollar should have weakened against major rivals with the release of Federal Open Market Committee Meeting minutes from the Aug. 9 meeting. Here the markets think they've seen a hint that they may get that treat after all. For it was revealed that some committee members favored more substantial stimulus than simply pledging to hold down rates and, even better, that more QE remains an option. In truth, however, the minutes don't change anything much. Given what we already know about the range of opinion on the FOMC it was never likely that QE would have been completely off the table. And the Fed's central view remains that the dollar presses could possibly be run again, should economic conditions worsen, but probably only if inflation starts to wind down. In other words, the chance of any more QE is entirely based on future data. However, as analysts at LloydsTSB put it, "there is now a window during which risk assets can retain at the very least a 'hope' that the now two-day 20-21 September FOMC meeting outcome will yield something meaningful on the stimulus front." The dollar's reaction to any shaky U.S. numbers in the interim will be interesting. Will it rise on the usual 'haven' demand or slide once more as the markets hope QE3 is that much nearer? EUROPE Safe-haven currencies pushed higher in European trading hours Wednesday, showing deep-seated investor nerves over global growth despite fresh expectations for further U.S. monetary easing which have boosted asset markets. The euro and the dollar both plunged against the Swiss franc, regarded as a safe haven in times of stress, with traders pointing to heavy franc buying by a Swiss bank. In a more gradual move, the yen also pushed higher. The shifts sharply contrast with the generally positive trend in European stock markets--U.K., German and French stocks are each up around 1%. "Whatever monetary policy can do for risk appetite and commodity prices, it can't necessarily perform the same for the Holy Grail - growth," French bank BNP Paribas said in a note to clients, referring to swelling expectations that the U.S. Federal Reserve might embark on a third round of easing in an effort to kickstart the economy. Industrial data from the U.S. due later Wednesday, including the Chicago purchasing managers' index, should offer some clarity on this issue, but market-watchers are bracing for the worst. "Currencies which had been holding up are now coming under pressure. There are increasingly strong signals that we are entering a broader global slowdown," said Ian Stannard, senior currency strategist at Morgan Stanley. The euro briefly spiked to the day's high against the dollar of $1.4470 after it was revealed that the German cabinet had approved the framework for the draft law that will change the terms of the European Financial Stability Facility, the euro zone's rescue fund. ASIA The U.S. dollar fell against the yen and euro on Wednesday in Asia, as investors speculate that growing pessimism toward the U.S. economic outlook will likely keep U.S. Treasury yields low for a prolonged period. Further weakening in the greenback is "very likely" because U.S. yields have been falling rapidly, suggesting deteriorating consumer and business sentiment regarding the world's largest economy, said Nomura Trust & Banking senior currency dealer Hideki Amikura. "The dollar will probably fall below Y70 by October," he said. Fueling such speculation is Tuesday's dovish remarks by Chicago Federal Reserve President Charles Evans, who insisted more monetary easing is necessary, dealers said. "It's likely that the FOMC will announce something new at the next meeting, say, an action that will express that the board is committed to keep the long-term yield low," he said, referring to the Federal Open Market Committee. Generally, a currency of a nation with falling bond yields weakens because its assets earn less. To gauge the likelihood of FOMC action at its next two-day meeting beginning Sept. 20, investors will pay attention to U.S. employment figures scheduled for release this week. WORLD The euro retreated from a near one-month high Tuesday in New York after a weak reading on consumer sentiment provided investors with a grim reminder about the toll Europe's debt crisis continues to exact on the Continent. With investors struggling to determine how European leaders will contain the debt crisis, traders were jolted by a European Commission survey that showed economic sentiment in the 17-nation currency bloc plunged to 98.3 in August from 103 in July, its weakest level in more than a year and below market expectations. Combined with an Italian bond auction that underwhelmed most investors and raised fears that sovereign debt contagion may yet claim the euro zone's third largest economy, the dour sentiment figures helped drag the euro below $1.44. Still, the euro is 4.4% higher than it was in mid-July, when fears about a Greek default sent the currency reeling to its weakest level since March. "It's only a matter of time until we start focusing on the European debt crisis," said John Doyle, foreign exchange trader Tempus Consulting in Washington. He added that once sluggish summer markets give way to more active trading, the shift away from U.S. economic fundamentals toward those of Europe would likely undermine the "overvalued" single currency.
