Looking at this week’s economic docket, there is quite an interesting end of week, when it comes to data and events. Today we are expecting policy rate decisions from the ECB and the BoE; tomorrow it will be the BoJ’s turn. While we are not expecting any major changes to be announced because consensus figures point towards a status quo, the events will still be attracting investors’ attention.
Optimism improved on hopes that a Spanish bailout request could ease eurozone concerns- Rudolf Muscat
Next Friday the US will present a health check of the US labour market – the US payrolls data. Non-farm payrolls are expected to go up and to have created an additional 113,000 jobs; any substantial discrepancies between the actual and expected figures will have a direct impact on the USD’s performance.
One needs to remember that the latest round of unlimited quantitative easing, launched by the Federal Reserve, is dependent on how well the US labour market performs.
If that were not enough, rumour has it that we could also possibly have some news on a Spanish request for help over the weekend. After the ECB lined up new ammunition through its Outright Monetary Transactions earlier in September hoping to cool off rising yields, Spain got all the attention. While seemingly hesitant to go for the ECB’s help, rising pressure on Spanish yields and the result of last week’s stress tests have pushed Spain into playing safe and to start paving the way for an official request for help.
After pairing most of the losses made through 2012 in August and September the EUR/USD’s rise has been stopped at 1.3172 in mid-September. Since then we hit three-week lows of 1.2803 on October 1. So far the currency pair still seems positioned for more bullishness, but the key levels to watch out for more acceleration are; to the upside 1.3045/1.3175 and to the downside 1.28/1.2733.
At week start, risk sentiment looked initially hesitant but optimism somewhat improved slightly on hopes that a Spanish bailout request could ease eurozone concerns. Chinese manufacturing data issued overnight ahead of Monday weighed on risk appetite; data showed that although the performance of the Chinese manufacturing sector improved (from 49.2 to 49.8) the figure remained short of the expected 50.1.
In the forex markets, among the majors, we saw that for the former part of the week the euro was still up an average 0.55 per cent across the board and the USD , the GBP and the JPY were down an average -0.13 per cent, -0.10 per cent and -0.31 per cent respectively.
Another Central Bank opted for more stimulus, the RBA cut its policy rates earlier this week, pushing the rate down to 3.25 per cent from the previous 3.5 per cent, motivated by a global growth outlook that still looked a bit weaker. The Australian Central Bank sounded less optimistic on expectations for mining investment as capital investors have second thoughts given commodity price weakness.
The softer Chinese data and the RBA’s move to cut the policy rates last Tuesday weighed on the AUD. The Aussie suffered losses of -1.18 per cent when seen against the euro and, seen against the USD, the Aussie shed another -0.71 per cent.
Gold continues its six-week rally: it has managed just short of five per cent gains throughout September where the price for the yellow metal closed at $1773.72, after opening at $1689.64. On the daily time frame we have seen that the price of the gold broke above key resistance at around $1721.60 on September 7 and had another significant thrust higher on September 13.
One should note that these dates correspond to the ECB announcement of OMT, in the first instance and to the Fed’s announcement of QE infinity in the second. Looking forward, if we take the longer term in perspective gold hit all-time highs in September 2011, after pursuing a longer term bullish trend. Since then the yellow metal has struggled to find direction and has traded for most of the past year within a range, as if waiting to find more direction.
This last move higher has pushed price towards the upper band of the trading range around the $1,785 - $1,795 region, that has held price moves higher since November 2011. We need to wait for a significant break of this area before seeing price accelerate higher.
Upcoming FX key events
Today: ECB rate decision, BoE rate decision and asset purchases target.
Tomorrow: US non-farm payrolls and unemployment rate, Canadian unemployment.
Technical key points
EUR/USD is bullish, target 1.3350, key reversal point 1.2612.
EUR/GBP is bullish, target 0.8200, key reversal point 0.7830.
USD/JPY is neutral.
GBP/USD is bullish, target 1.6400, key reversal point 1.5750.
USD/CHF is bullish, target 1.00, key reversal point 0.91.
AUD/USD is neutral.
NZD/USD is neutral.
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Mr Muscat is a senior trader at RTFX Ltd.