When will the Fed move on interest rates?

Unscheduled comments from Williams who said a June liftoff is ‘reasonable’ amid soft job gains in an interview with Bloomberg.
•June interest rate rise ‘probably a close call’
•‘Wage and price data are still soft’
•US labor continuing ‘strong momentum’

Williams has a reputation as a dove but it’s not deserved and mostly because he’s from Yellen’s San Francisco Fed. This is inline with his recent rhetoric.

USD/CAD Surges As BoC Drops Rate Bias

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Market Snapshot (near-term 48 hour outlook)
USD/CAD:  Bullish. Spot at 1.0398
EUR/CAD:  Strongly Bullish. Spot at 1.4367
GBP/CAD:  Strongly Bullish. Spot at 1.6825
EUR/USD:  Strongly Bullish. Spot at 1.3808
GBP/USD:  Slightly Bullish. Spot at 1.6175
Today’s Commentary
USD/CAD Commentary

The Bank of Canada (BoC) kept rates steady yesterday, holding the benchmark rate at 1% as expected. More importantly, the Bank dropped its hawkish rate bias and expressed increasing concern regarding recent low levels of inflation. In recent meetings, the statement contained an upward bias on rates by noting that “a gradual normalization of policy interest rates can also be expected” as economic conditions normalize over time. This rhetoric was absent from yesterday’s release and the Canadian dollar was sold sharply as a result. The USD/CAD hit 1.0393 during U.S. morning trade, the highest since October 16; the pair subsequently consolidated at 1.0383.

Furthermore, the economy is not meeting the BOC’s prior expectations. The Bank trimmed its growth outlook for this year to 1.6% from 1.8%, and reduced next year’s growth projection to 2.3% from 2.7%. The rotation of demand in Canada toward export and investment continues to be delayed which has been underscored by persistent weakness in Canadian trade data. Couple the weak trade data with soft inflation, which is at a yearly rate of 1.1%, indicates the potential for a more dovish stance toward monetary policy.

The greenback was higher against the Canadian dollar prior to the BoC announcement as concerns that China’s central bank would tighten monetary policy to help control inflation.  Market sentiment was also hit after the European Central Bank announced details of new year-long bank stress tests on Wednesday. The news sparked concerns over a revival of the crisis in the euro zone.

The Canadian Dollar was also lower against the euro and the sterling with the EUR/CAD closing just above the 1.4300 level and the GBP/CAD closing at 1.6785.

Short term technicals have turned bullish with the pair looking to test the 1.04’s given the break of the 100 day moving average at 1.0366.

Today’s expected trading range is 1.0350 – 1.0450

EUR/USD Commentary

The EUR/USD closed yesterday’s trading day near 8 month highs at 1.3776.  The climb however seems to be artificially driven by weakness in the dollar and not any positive changes in the eurozone. The eurozone’s debt burden rose further in the second quarter, official figures showed Wednesday, despite years of austerity that one prominent European Union economist says intensified the financial crisis. Eurostat, the EU’s statistics office, said debt across the 17 countries that use the euro rose to 93.4 percent of the eurozone’s annual gross domestic product from 92.3 percent the previous quarter.

Though countries across the region, such as Greece and Spain, have made great strides in reducing their borrowing through spending cuts and tax increases, they’re still running budget deficits that add to their stockpile of debt. The eurozone’s economy also isn’t growing fast enough to help lower the debt figures measured relative to total GDP a sustained period of strong growth would help reduce the debt burden figures. Germany said Wednesday its robust economy would fuel record employment this year and next as well as boost consumer spending and industrial investment. The economy ministry said in its autumn forecast that gross domestic product would expand 0.5 percent this year and 1.7 percent next year, confirming reports from sources on
Tuesday and underlining the rude health of Europe’s top economic power. The unemployment rate is set to hit 6.9 percent this year and fall to 6.8 percent in 2014 — far below the 12 percent reported by the crisis-hit eurozone, the report said.

Short term technicals remain bullish with the pair trying to test the 1.3800 psychological level.

Today’s expected trading range is 1.3725 – 1.3875

GBP/USD Commentary

The pound slid lower against the dollar on Wednesday, but losses were limited as Tuesday’s disappointing U.S. jobs report cemented expectations that the Federal Reserve will delay plans to start scaling back its stimulus program. GBP/USD hit 1.6120 during European afternoon trade, the session low; the pair subsequently consolidated at 1.6165 to close the trading day.

The dollar remained under pressure after data showing weaker than expected U.S. jobs growth in September added to the view that the Fed will maintain the current pace of its asset purchase program until well into next year. The Department of Labor said the U.S. economy added 148,000 jobs in September, well below expectations for an increase of 180,000, indicating that jobs growth had slowed even before the start of the recent 16-day government shutdown.

In the U.K., Wednesday’s minutes of the Bank of England’s October meeting said the unemployment rate appears to be falling at a faster than expected rate as the “robust” recovery gains traction. The unemployment rate declined to 7.7% from 7.8% since the bank released its August inflation report, when it said it would take three years to fall to the threshold of 7% at which it would start to look at raising interest rates. The bank estimated that growth in the second half of the year would remain around 0.7% a quarter or a little higher, stronger than expected at the time of the August inflation report. Policymakers voted unanimously to keep interest rates unchanged at 0.5% and to keep stimulus on hold the minutes said.

Short term technicals continue to remain bullish with the pair continuing to remain bullish in the short term.

Today’s expected trading range is 1.6100 – 1.6250

Opening FX Rates (USD)
USD/CAD 1.0398
EUR/USD 1.3808
GBP/USD 1.6175
USD/JPY 97.29
AUD/USD 0.9620
USD/HKD 7.7528
USD/PLN 3.0297
USD/THB 31.109
   
Opening FX Rates (CAD)
USD/CAD 1.0398
EUR/CAD 1.4367
GBP/CAD 1.6825
CAD/JPY 93.44
AUD/CAD 1.0011
CAD/HKD 7.4498
CAD/PLN 2.9106
CAD/THB 29.9167
   
Opening Commodities (USD)
Oil 97.03
Gold 1343.29
Silver 22.79
   
Economic and Event Calendar
CNY HSBC Manufacturing PMI Oct 23
EUR Manufacturing PMI Oct 23
BoE Governor Carney Speech Oct 23
GBP Gross Domestic Product Oct 24
USD Durable Goods Orders Oct 24

USD Dives on Disappointing Unemployment Numbers

MTFXLogoMarket Snapshot (near-term 48 hour outlook)
USD/CAD:  Slightly Bullish. Spot at 1.0317
EUR/CAD:  Bullish. Spot at 1.4191
GBP/CAD:  Slightly Bearish. Spot at 1.6660
EUR/USD:  Slightly Bullish. Spot at 1.3755
GBP/USD:  Bearish. Spot at 1.6146
Today’s Commentary
USD/CAD CommentaryThe U.S. dollar fell to session lows against the Canadian dollar on Tuesday after data showed that the U.S. economy added fewer than expected jobs in September and Canadian retail sales rose in August.

USD/CAD hit 1.0282 during early U.S. trade, the lowest since Friday; the pair subsequently consolidated at 1.0293. The greenback slid after the Department of Labor said the U.S. economy added 148,000 jobs in September, well below expectations for an increase of 180,000. The previous month’s figure was revised up to a gain of 193,000 from a previously reported increase of 169,000. The unemployment rate ticked down to a four-and-a-half year low of 7.2% from 7.3% in August, but this was partially due to more people dropping out of the labor force. The jobs report was released 18 days behind schedule due to disruption caused by the recent U.S. government shutdown.  The disappointing data reinforced expectations that the Federal Reserve would postpone plans to start tapering its stimulus program until at least the beginning of next year. The dollar dropped sharply late last week as concerns over the impact of the 16-day shutdown on the U.S. economic recovery saw investors reevaluate the possible timescale for a reduction in Fed stimulus.

Meanwhile, Statistics Canada said Tuesday that retail sales rose 0.2% in August, slightly below forecasts for a 0.3% gain. Core retail sales rose 0.4%, better than expectations for a 0.2% increase.

Today’s BoC interest rate report will be a market mover for the pair.  Consensus suggests that interest rates will remain as they are but that the BoC will be more dovish on the economy.  This should limit the downside risk to the
USD/CAD.

Short term technicals suggest that the pair should find support at 1.0265 while initial resistance lies at 1.0330.

Today’s expected trading range is 1.0275 – 1.0350

EUR/USD CommentaryYesterday buying interest remained intact around the shared currency at the end of the trading session in Wall St, with the EUR/USD hovering over 1.3780/90.

There is no docket in the euro area on today, with the most relevant releases coming from the advanced gauges of manufacturing and services PMI due on Thursday and the German IFO on Friday. Market consensus expects the recovery in the euro area to persist, giving further support to the single currency and thus paving the way for a visit to levels beyond 1.3800 the figure in the near term. Analysts at KBC Bank suggested “We expect the ECB to avoid a break of the 1.40 level”.

Short term technicals remain bullish with the pair trying to test the 1.38 psychological level.

Today’s expected trading range is 1.3700 – 1.3850

GBP/USD CommentaryGBP/USD has continued on the bid from the mid-point of yesterday’s range between 1.6116 and 1.6215. Sterling has kept its form, regaining demand from 1.6170 and has climbed well above the 1.6200 territory since the release of the US unemployment data to close at 1.6230. With the non-farm payroll news which has now been digested suggests that the GBP will target the short term high of 1.6260 and then the year to date high of 1.6381.

Earlier yesterday, data showed that the U.K. public sector deficit narrowed to GBP11.1 billion in September from GBP12.1 billion in September 2012. All eyes now await the minutes from the Bank of England meeting to see whether they are becoming more hawkish on their forward guidance than previously announced.

Short term technicals are bullish with the pair trying to test the recent high of 1.6260 and the year to date high of 1.6381.

Today’s expected trading range is 1.6100 – 1.6225

Opening FX Rates (USD)
USD/CAD 1.0317
EUR/USD 1.3755
GBP/USD 1.6146
USD/JPY 97.39
AUD/USD 0.9627
USD/HKD 7.7525
USD/PLN 3.0344
USD/THB 31.165
Opening FX Rates (CAD)
USD/CAD 1.0317
EUR/CAD 1.4191
GBP/CAD 1.6660
CAD/JPY 94.38
AUD/CAD 0.9930
CAD/HKD 7.5127
CAD/PLN 2.9404
CAD/THB 30.2249
Opening Commodities (USD)
Oil 96.52
Gold 1331.74
Silver 22.69
Economic and Event Calendar
GBP MPC Meeting Minutes Oct 23
CAD Interest Rate Decision Oct 23
EUR Consumer Confidence Oct 23
USD Trade Balance Oct 24
 BoE Governor Carney Speech Oct 24

USD Weakens But Contained for Now

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Market Snapshot (near-term 48 hour outlook)

USD/CAD:  Neutral. Spot at 1.0302
EUR/CAD:  Neutral. Spot at 1.4064
GBP/CAD:  Slightly Bullish. Spot at 1.6614
EUR/USD:  Neutral. Spot at 1.3667
GBP/USD:  Neutral. Spot at 1.6142

 

Today’s Commentary
USD/CAD Commentary

Last week was quite a volatile week for the USD as it got a pounding against most of the major currencies.  Highlights for the past week include:

United States:

After a 16-day government shutdown, legislation was passed ending the stalemate and the government re-opened Thursday. The agreement puts off the next fight at least until the New Year, funding the government until January 15th, and raising the debt ceiling through February 7th.

Economic growth in the fourth quarter has likely been reduced by as much as 0.5 percentage points as a result of the shutdown and debt ceiling fight. The threat of another impasse also raises downside risks to economic growth next year.

Given the hit to economic growth, the prospect for the Fed to begin tapering in either of the last two meetings this year is close to nil. With the risk of further political discord early next year, the Fed may again elect to remain on standby at least through January.

Canada:

The Canadian economy is still trapped in a battle between household strength and export weakness. September existing home sales reached the highest level since April 2010 and home price growth accelerated to 8.8% year-over-year. On the flipside, a 0.2% decline in manufacturing shipments in August further confirmed the soft underbelly of the export-dependent sector.

The Canada-EU free trade agreement was finally announced this week, following six years of negotiations.

The USD/CAD:

The USD/CAD eased to 1.0287 giving up 70 points as the US debt and budget debates distracted traders but once settled the US dollar tumbled to trade below the 80 level, allowing the currency pair to slide. Canadian markets will be keenly watching developments over the next several weeks south of the border in the US debt ceiling debate. A prolonged US government shutdown that impairs the outlook for the US economy with negative effects on Canada may be expected to result in a stronger USD and a weaker CAD to a point. A US default scenario that crosses such a point would likely be very different and prompt a potentially sharp weakening in the USD. The conservative government of Prime Minister Stephen Harper will present its priorities on Wednesday as Parliament reconvenes.

The Canadian dollar fell versus most of its 16 major peers as a government report showed inflation remained at the low end of the Bank of Canada’s target band. The currency fluctuated against its U.S. counterpart as consumer prices increased 1.1 percent in September from a year earlier, Statistics Canada said today in Ottawa. That compared with a forecast for a 1 percent increase, according the median in a Bloomberg survey of 22 economists. The Bank of Canada, which is scheduled to make its next policy announcement Oct. 23, targets inflation at 1 to 3 percent.

Short term technicals have turned bearish with the pair trying to test 1.0258.

Today’s expected trading range is 1.0250 – 1.0350

EUR/USD Commentary

The EUR/USD reached recent highs this past week topping 1.37 for a quick minute but easing back to 1.3694 at the conclusion of the US debt ceiling and budget approval. With lawmakers passing a short term fix traders went on the hunt for higher risk assets pushing the US dollar to recent lows. This could be a very big week for the US and hence global markets. US markets will begin a data deluge in the wake of the end to the partial government shutdown. Nonfarm payrolls are penned in for release on Tuesday, and consensus expects a rise of about 180,000 with most forecasters in the roughly 150k-200 k ranges. The finance sector could well be a drag on job growth in light of fairly large layoffs in the mortgage servicing business. There is an argument for looking through a stronger than- expected print by viewing it as stale data before a possible confidence shock to hiring unfolded through Washington’s follies this month and the emergence of an agreement that only buys temporary respite from divisive negotiations.

Beyond the delayed data, there will be plenty to chew on by way of housing and business investment figures. Home resale’s (Monday) are expected to begin weakening in lagged response to the mortgage rate shock that unfolded since Fed Chairman Ben Bernanke first referenced tapering in May. That’s because there is a multi-month lag between signing a mortgage rate hold agreement, shopping for a home, and closing the purchase after which the sale gets recorded as a completed resale.

Short term technicals have changed from mixed tobullish.  Support lies at 1.3646 while resistance lies at 1.3800.

Today’s expected trading range is 1.3600 – 1.3725

GBP/USD Commentary

The GBP/USD climbed this week to trade at 1.6180 gainingalmost 200 points as the US dollar weakened and retail sales and labor numbersreported higher than forecast. European markets will be heavily influenced by the US debt ceiling debate, but there will be enough local twists and turns to make for independent influences upon local market tone. That’s especially true for the UK that releases CPI figures on Tuesday, job market data including the unemployment rate on Wednesday, and retail sales on Thursday. These releases will further inform the debate over the Bank of England conditional long-term policy hold that extends until the end of 2016 partly on the assumption that the unemployment rate does not improve by a few tenths of a percentage point over this three-year period of time.

Short term technicals have shifted to a bullish stance with the pair targeting the recent high of 1.6260.

Today’s expected trading range is 1.6075 – 1.6200

Opening FX Rates (USD)
USD/CAD 1.0302
EUR/USD 1.3667
GBP/USD 1.6142
USD/JPY 98.20
AUD/USD 0.9664
USD/HKD 7.7527
USD/PLN 3.0585
USD/THB 31.074

 

Opening FX Rates (CAD)
USD/CAD 1.0302
EUR/CAD 1.4064
GBP/CAD 1.6614
CAD/JPY 95.37
AUD/CAD 0.9943
CAD/HKD 7.5324
CAD/PLN 2.9712
CAD/THB 30.1941

 

Opening Commodities (USD)
Oil 99.93
Gold 1316.71
Silver 22.16
Economic and Event Calendar
EUR Producer Price Index Oct 21
CAD Wholesale Sales Oct 21
USD Existing Home Sales Oct 21
CAD Retail Sales Oct 22
USD Non Farm Payrolls Oct 22

USD Gets Dunked On A Chinese Kiss, Dovish Fed & US Ouflows

MTFXLogoMarket Snapshot (near-term 48 hour outlook)
USD/CAD:  Neutral. Spot at 1.0303
EUR/CAD:  Neutral. Spot at 1.4092
GBP/CAD:  Neutral. Spot at 1.6662
EUR/USD:  Neutral. Spot at 1.3677
GBP/USD:  Neutral. Spot at 1.6180
Today’s Commentary
USD/CAD CommentaryThe dollar was lower against the other major currencies on Thursday as expectations that the economic impact of the U.S. debt crisis would see the Federal Reserve continue its stimulus program weighed.

Congress passed a bill to reopen the government and raise the debt ceiling, just hours ahead of a deadline to avert a sovereign debt default. The deal will fund the government until January 15 and raise the government borrowing limit until February 7. Both sides also agreed to talks over broad budget issues in an attempt to reach a longer-term deal by December 13.

The dollar came under heavy selling pressure amid fears that the impact of the government shutdown on the already fragile economic recovery would prompt the Fed to the delay plans for scaling back its stimulus program until at least the start of next year. The possibility of another debt crisis also loomed, as the temporary solution does not resolve the underlying budgetary issues dividing Republicans and Democrats.

In a chaotic day, Chinese agency Dagong downgraded US rating. Economic data had almost no effect in market as currencies and stocks didn’t reacted amid worse than expected jobless claims and well above consensus Philly Fed manufacturing index.

The USD/CAD dipped to a recent low and closed the trading day at 1.0294. The Canadian dollar rose to the highest level in a week as U.S. Senate leaders reached a bipartisan deal to end a government shutdown and avoid default, fueling demand for riskier assets. The currency gained against the majority of its 16 most-traded peers as Republicans from the House of Representatives and the Senate signaled they would let the bill pass without the provisions to defund President Barack Obamas 2010 health care plan, which they had demanded when the standoff began four weeks ago.

Canadian factory sales unexpectedly fell in August, with food and automobile production slowed following maintenance shutdowns. Sales fell 0.2 percent to C$49.5 billion, Statistics Canada said yesterday, while economists surveyed by Bloomberg forecast a 0.2 percent increase. Food sales fell 1.6 percent to C$7.06 billion and motor vehicles by 2.5 percent to C$4.45 billion. Canadian Finance Minister Jim Flaherty’s criticism last week of the U.S Federal Reserve’s use of unconventional monetary policy to stimulate the economy could put him at odds with the Bank of Canada, which lists such policies as tools for when its key policy rate is as low as possible.

Short term technicals remain mixed with support located at the 200 moving day average of 1.0256 while resistance lies at 1.0368.

Today’s expected trading range is 1.0250 – 1.0350

EUR/USD CommentaryThe EUR/USD rallied after President Obama approved the measure to send the government back to work and raise the debt ceiling gaining 134 points to trade at 1.3670. The dollar fell the most in a month versus the euro on bets disruption from the U.S. debt-ceiling debate will hamper growth and prompt the Federal Reserve to postpone tapering its currency-debasing stimulus program.

The U.S. currency weakened against all but one of its 16 major peers after Blackrock Inc. (BLK) and Pacific Investment Management Co. said the Fed will maintain its bond purchases that have debased the greenback. The Fed Bank of Philadelphia’s general economic index fell to 15 in October from 22.3 the previous month, according to a Bloomberg News survey before the report today. Readings above zero signal growth. The Empire State index for the New York region dropped to a five-month low of 1.5 in October, a report showed Oct. 15. The dollar has dropped 1.3 percent in the past month, according to Bloomberg Correlation Weighted Indexes, which track 10 developed-country currencies.

After the US budget deal, markets will now gauge the impact of the crisis and of the deal on the US economy and on the Fed policy. It remains an uncertain context for the dollar. As mentioned, markets apparently position for the Fed to start tapering later rather than sooner. With political uncertainty again looming early next year, tapering might be postponed to Q1 of 2014. This is negative for the dollar. So, more sideways technical trading in EUR/USD is favored.

Short term technicals remain mixed on the pair though the pair is trying to test its year to date levels.  No point in fighting the current near-term upside momentum.

Today’s expected trading range is 1.3600 – 1.3750

GBP/USD CommentaryThe GBP/USD climbed over 200 points to trade close the trading day at 1.6158 after retail sales reported well above forecast, which combined with positive jobs data is helping shift sentiment towards the pound. The US dollar eased after Washington returned to work and the US decided to pay their debts. The pound rallied the most in a month against the dollar after the Office for National Statistics said retail sales including fuel increased 0.6 percent from August. The median forecast of 21 economists in a Bloomberg survey was for a 0.4 percent gain.

GBPUSD is up on the combination of the US bill to end the shutdown, stronger than expected retail says and the BoE’s Spencer Dales hawkish comments. In an interview with the Guardian Spencer Dale reiterated that he was uncertain when interest rates would need to rise, but that it was conceivable even in 2014. Even though his comments were less hawkish than this comment would imply, the comments were still supportive of GBP.

Short term technicals remain supportive of the pound as the pair looks to resume a test of its year to date high of 1.6381.

Today’s expected trading range is 1.6100 – 1.6250

Opening FX Rates (USD)
USD/CAD 1.0303
EUR/USD 1.3677
GBP/USD 1.6180
USD/JPY 97.83
AUD/USD 0.9655
USD/HKD 7.7533
USD/PLN 3.0549
USD/THB 31.019
Opening FX Rates (CAD)
USD/CAD 1.0303
EUR/CAD 1.4092
GBP/CAD 1.6662
CAD/JPY 94.95
AUD/CAD 0.9938
CAD/HKD 7.5285
CAD/PLN 2.9658
CAD/THB 30.1492
Opening Commodities (USD)
Oil 101.69
Gold 1317.30
Silver 22.07
Economic and Event Calendar
CNY Gross Domestic Product Oct 18
CAD Consumer Price Index Oct 18
USD Existing Home Sales Oct 21
CAD Wholesale Sales Oct 21
USD Non Farm Payrolls Oct 22

Deal Struck! What’s Next?

MTFXLogoMarket Snapshot (near-term 48 hour outlook)
USD/CAD:  Slightly Bearish. Spot at 1.0312
EUR/CAD:  Bullish. Spot at 1.4073
GBP/CAD:  Bullish. Spot at 1.6594
EUR/USD:  Strongly Bullish. Spot at 1.3659
GBP/USD:  Strongly Bullish. Spot at 1.6116
Today’s Commentary
USD/CAD CommentaryThe CAD weakened against the USD yesterday after U.S. Senators agreed on terms to end a fiscal impasse that closed the federal government and had threatened to throw the U.S. into default. Senate Majority Leader Harry Reid, a Democrat, and the Senate’s top Republican, Mitch McConnell, said they agreed on a plan to end the fiscal impasse needed to reopen the government as well as extend Washington’s borrowing authority to avoid defaults.

The budget deal will give the Treasury the authority to continue borrowing through Feb. 7 and fund the government through Jan. 15, but will also add in spending cuts, which appeased Republicans. The Treasury was due to hit its debt ceiling on Thursday, after which the government could not guarantee payments on obligations for much longer. House Speaker John Boehner said earlier the House would not block the compromise. U.S. credit ratings agency Fitch Ratings on Tuesday placed the U.S. ‘AAA’ debt on “rating watch negative” due to congressional inability to pass a spending package.

The budgetary gridlock in the US caused little reaction in the FX markets as for the most part a resolution had already been priced in. The lack of volatility in the markets is in part due to the reaction of the Fed and expectations that they will push tapering out to counterbalance the US fiscal woes.  Over the medium term, the Fed is likely to push tapering out further than originally predicted and as such it also pushes out our call for a stronger USD.

An interesting article published by World Economics Today suggests that the Canadian dollar is overvalued by more than 10 per cent; this still pales in comparison to several other countries. The groups World Price Index looks at the value of currencies against the U.S. greenback based on a basket of goods and services at purchasing power parity. Though this overvaluation may seem staggering it should be taken with a grain of salt as the report also showed that euro in Italy, Spain and France are even more overvalued than the CAD.

Short term technicals continue to remain mixed.  Though the USD/CAD has traded to new lows over the last few days we see dips on the pair to be well supported into the 1.0230/1.0330 levels.  Only a clear break of 1.0231 would argue a major trend reversal.

Today’s expected trading range is 1.0275 – 1.0375

EUR/USD CommentaryThe dollar moved higher against the euro on Wednesday as markets digested news that U.S. lawmakers have struck a spending deal needed to reopen the government and avoid throwing the country into default.  The pair closed the trading day at 1.3530.

The fundamental data out of Europe remained uninspiring.  Data released on Wednesday showed that the annual rate of consumer inflation in the euro zone was unchanged from a preliminary estimate of 1.1% in September. A separate report showed that the euro zone’s trade surplus widened to EUR12.3 billion in August from EUR11 billion in April, broadly in line with forecasts.

Short term technicals remain mixed with the pair likely to find support at 1.3462, the low from Sept. 25, and resistance at 1.3598, Monday’s high.

Today’s expected trading range is 1.3575 – 1.3725

GBP/USD CommentaryThe pound erased gains against the U.S. dollar on Wednesday, while investors hoped for a last minute U.S. budget deal before Thursday’s deadline to raise the debt limit and avoid a sovereign default.

GBP/USD pulled away from 1.6058, the pair’s highest since October 9, to close the trading day at 1.5950. The pound found support earlier; after data showed that the number of people claiming unemployment benefits in the U.K. posted the largest decline since June 1997 in September.

The Office for National Statistics said that the U.K. claimant count fell by 41,700 in September, outstripping expectations for a decline of 25,000 people. The previous month’s figure was revised to a drop of 41,600 people from a previously reported decrease of 32,600. The rate of unemployment held steady at 7.7% in August, in line with expectations and unchanged from July. The ONS said the average earnings index rose 0.7% in August, below expectations for a 1% increase, after rising by 1.1% in the previous month.

Short term technicals remain mixed.  The GBP will have to rally above the 1.6084 for there to be any shift away from the current bearish signals.

Today’s expected trading range is 1.6025 – 1.6175

Opening FX Rates (USD)
USD/CAD 1.0312
EUR/USD 1.3659
GBP/USD 1.6116
USD/JPY 97.83
AUD/USD 0.9622
USD/HKD 7.7537
USD/PLN 3.0567
USD/THB 30.990
Opening FX Rates (CAD)
USD/CAD 1.0312
EUR/CAD 1.4073
GBP/CAD 1.6594
CAD/JPY 95.01
AUD/CAD 0.9908
CAD/HKD 7.5307
CAD/PLN 2.9678
CAD/THB 30.1176
Opening Commodities (USD)
Oil 101.69
Gold 1317.30
Silver 22.07
Economic and Event Calendar
GBP Retail Sales Oct 17
USD Initial Jobless Claims Oct 17
USD Fed Manufacturing Survey Oct 17
CNY Gross Domestic Product Oct 18
CAD Consumer Price Index Oct 18

Default of No Default? Fitch Warns the US Government

MTFXLogo

Market Snapshot (near-term 48 hour outlook)
USD/CAD:  Neutral. Spot at 1.0369
EUR/CAD:  Slightly Bullish. Spot at 1.4065
GBP/CAD:  Bullish. Spot at 1.6621
EUR/USD:  Bullish. Spot at 1.3560
GBP/USD:  Bullish. Spot at 1.6024
Today’s Commentary
USD/CAD CommentaryU.S. stocks fellon Tuesday after lawmakers hit a fresh snag in their efforts to approve a spending package needed to reopen the federal government and also steer the country awayfrom possible defaults. At the close of U.S. trading, the Dow Jones Industrial Average finished down 0.87%, the S&P 500 index fell 0.71%, while the Nasdaq Composite index fell 0.56%.

Negotiations among lawmakers to find a way to fund the government and avoid possible defaults hit a snag on Tuesday after the Democratically-controlled Senate said it would stop working on a way out of the impasse until the Republican controlled House comes up with a new proposal.

The news sent stocks falling by catching investors by surprise, who were upbeat earlier when both the Senate and the House of Representatives prepared roadmaps to end the crisis that were viewed by many as compatible.

While the dollar avoided losses amid sentiments that budget talks have hit a pothole but weren’t dead in the water yet, stocks stayed in negative territory, mainly on concerns that House Speak John Boehner will present a new plan with previsions previously rejected by Democrats.

Any potential deal will still have to be approved by the House of Representatives, where Speaker John Boehner would have to decide whether to allow a vote or demand federal spending cuts. If an agreement to raise the government borrowing limit is not struck ahead of Thursday’s deadline, the U.S. will face an unprecedented sovereign debt default.

Meanwhile, data released on Tuesday showed that an index of manufacturing activity in the New York region came in below expectations this month. The Federal Reserve Bank of New York said that its general business conditions index fell to 1.52 in the current month from 6.29 in September. Analysts had expected a reading of 7.0.

The USD/CAD closed yesterday’s trading session at 1.0380. There is very little data out today and focus will likely remain on US politics and growth implications.   Later this week we get the Canadian CPI numbers, which are expected in at just 1.0% on the headline number and 1.4% y/y on the core reading.  Markets are pricing in a very small chance of 16% for a BoC rate hike over the next twelve months.

Short term technicals continue to remain mixed with the pair trading in a very narrow range.  Initial resistance comes in at 1.0420.  A decisive break there should open up 1.0500.

Today’s expected trading range is 1.0300 – 1.0425

EUR/USD CommentaryThe euro fell to two-week lows against the firmer dollar on Tuesday.  EUR/USD hit 1.3480 during U.S. morning trade, the lowest since September 30; the pair subsequently consolidated to close the trading day at 1.3525.

The single currency shrugged off data showing that German economic sentiment improved more-than-expected in October, rising to the highest level since April 2010. The ZEW Centre for Economic Research said that its index of German economic sentiment rose by 3.2 points to hit 52.8 in October from September’s reading of 49.6. Analysts had expected an unchanged reading.

FX markets continue to focus on the US political deadlock and seem not too interested in the political problems brewing in Europe.  There is quite a bit of uncertainty on the bank stress tests that are expected over the next few weeks and how the banks will find ways to recapitalize.  Furthermore, Germany’s finance minister suggested earlier this week that Greece has a significant financial gap of 5 –6 billion euros and that creditors are going to have to do more to manage the gap.  Amidst all the uncertainty surrounding Europe, the EU countries are on tap to present their budgets over the coming weeks, which will only further highlight the ongoing uncertainty of the region and medium term outlook for Europe.

Short term technicals continue to remain bearish with the pair looking for a near term test of 1.3392.

Today’s expected trading range is 1.3475 – 1.3625

GBP/USD CommentaryThe GBP closed yesterday’s trading session just shy of the 1.6000 level.  CPI numbers released out of the UK yesterday showed a stronger than expected reading of 2.7% y/y and a headline reading of 2.2% on core.  Though inflation is a primary ingredient to the BoE’s expectations, today’s unemployment data is will be the key data point that will drive policy expectations.  The release is expected to show job growth of 125K jobs with an unemployment rate steady at 7.7%.

Short term technicals continue to remain bearish with the pair looking to target the 50 day moving average of 1.5798.

Today’s expected trading range is 1.5950 – 1.6100

Opening FX Rates (USD)
USD/CAD 1.0369
EUR/USD 1.3560
GBP/USD 1.6024
USD/JPY 98.44
AUD/USD 0.9533
USD/HKD 7.7542
USD/PLN 3.0772
USD/THB 31.242
Opening FX Rates (CAD)
USD/CAD 1.0369
EUR/CAD 1.4065
GBP/CAD 1.6621
CAD/JPY 94.86
AUD/CAD 0.9885
CAD/HKD 7.4788
CAD/PLN 2.9659
CAD/THB 30.1551
Opening Commodities (USD)
Oil 100.93
Gold 1279.30
Silver 21.24
Economic and Event Calendar
 GBP Unemployment Data Oct 16
 EUR Consumer Price Index Oct 16
 CAD Manufacturing Shipments Oct 16
 USD Fed Beige Book Oct 16
 GBP Retail Sales Oct 17
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