Dollar strengths mildly today as global stocks are mildly softer ahead
of the highly anticipated FOMC announcement. It's widely expected
policymakers will announce something called 'operation twist'
-increasing the average maturity of securities holdings by swapping
holdings of lower maturities Treasuries with longer ones, after the
2-day meeting. Compared with outright bond purchases (QE3), one
advantage of operation twist is that the size of the Fed's balance
sheet would remain unchanged and is less unlikely to invoke inflation.
Sterling is notably lower broadly after BoE minutes revealed that
most MPC members thought "stresses of the past month had significantly
strengthened the case for an immediate resumption of asset purchases".
And "for some members, a continuation of the conditions seen over the
past month would probably be sufficient to justify an expansion of the
asset purchase program at a subsequent meeting." Markets interpreted
that as a signal BoE is opening the door wide for more quantitative
easing sooner rather than later. And there are speculation that BoE
would start in October with another GBP 50b of asset purchases even
though November would probably the more likely timing. In additional
Sterling is pressured by data showing larger than expected public sector
net borrowing, excluding the temporary effects of financial
interventions, of GBP 15.9b in August. That was the highest in record
for the month.
The Swiss France remains soft today on speculation that SNB would
raise the floor of EUR/CHF to 1.5. Ernst Baltensperger, an adviser to
SNB said he considers it's possible and said in an interview that all
fundamental data are pointing toward a range of between 1.30 and 1.40.
SNB spokesman declined to comment on the speculation yesterday and there
is no announcement from SNB so far today.
European Commission President Barroso said that the Eurobond should
remain an option to be discussed and should not be excluded. This is
seen by markets as a signal that he's softening his stance after facing
strong opposition from Germany and France on the idea of Eurobonds.
Meanwhile, it's reported that Eurozone debt crisis will be the main
subject of discussion in the next G20 meeting, which holds alongside
IMF's annual meeting in Washington later this week.
Data from Canada saw CPI jumped more than expected to 3.1% yoy in
August while core CPI rose to 1.9% yoy. But the data provides little
support to the Canadian dollar. Other data saw Japan all industry
activity index rose 0.4% mom in July, trade deficit at JPY -0.29T in
August. China leading indicator rose 0.6% in July. Australian Westpac
leading index rose 0.5% in July.
GBP/USD Daily Outlook
GBP/USD's fall resumes after brief consolidations and drops to as low
as 1.5591 so far today. Intraday bias is back on the downside and
further decline should be seen to next key medium term support at
1.5344. On the upside, above 1.5747 minor resistance will argue that a
short term bottom is formed with bullish convergence condition in 4
hours MACD. In such case, lengthier consolidation would be seen before
GBP/USD stages another decline.
In the bigger picture, rise from 1.4229, which is treated as the
third leg of consolidation from 1.3503 (2008 low) should be finished at
1.6746 after GBP/USD completed a head and shoulder top reversal pattern
(ls: 1.6298, h: 1.6746, rs: 1.6618). Fall from 1.6746 could be the
fourth leg of the consolidation pattern from 1.3503 (2008 low) or
resuming long term down trend from 2.1161 (2007 high). In either case, a
test on 1.3503/4229 support zone should be seen. On the upside, break
of 1.6618 resistance is needed to invalidate this view. Or we'll now
stay cautiously bearish in GBP/USD.
USD/JPY Daily Outlook
Daily Pivots: (S1) 76.27; (P) 76.52; (R1) 76.68;
Intraday bias in USD/JPY remains on the downside and current fall is
still in progress for 75.94 support. As noted before, consolidation from
75.94 should have completed at 77.85 already. Break of 75.94 will
confirm resumption of whole fall from 85.51. On the upside, above 76.97
minor resistance will delay the bearish case again and turn bias neutral
to extend the consolidation from 75.94.
In the bigger picture, USD/JPY is still staying well inside the
falling channel that started back in 2007 at 124.13. There is no
indication of trend reversal yet even though medium term downside
momentum is diminishing with bullish convergence condition in weekly
MACD. Such down trend is still in favor to continue to 70 psychological
level. In any case, break of 80.23 resistance is first needed to
indicate completion of fall from 85.51. Secondly, break of 85.51 is
needed to be the first signal of medium term reversal. Otherwise, we'll
stay cautiously bearish in the pair.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Consensus | Previous | Revised |
|---|---|---|---|---|---|---|
| 22:45 | NZD | Current Account Balance Q2 | -0.92B | -0.69B | -0.10B | -0.09B |
| 23:50 | JPY | Trade Balance Aug | -0.29T | -0.01T | -0.13T | -0.16T |
| 0:30 | AUD | Westpac Leading Index M/M Jul | 0.50T | 0.10% | ||
| 2:00 | CNY | Leading Indicator Jul | 0.60% | 1.00% | 0.90% | |
| 4:30 | JPY | All Industry Activity Index M/M Jul | 0.40% | 0.50% | 2.30% | |
| 8:30 | GBP | BoE Minutes | 0--0--9 | 0--0--9 | 0--0--9 | |
| 8:30 | GBP | Public Sector Net Borrowing (GBP) Aug | 13.2B | 11.4B | -2.0B | -5.2B |
| 11:00 | CAD | CPI M/M Aug | 0.30% | 0.10% | 0.20% | |
| 11:00 | CAD | CPI Y/Y Aug | 3.10% | 2.90% | 2.70% | |
| 11:00 | CAD | BoC CPI Core M/M Aug | 0.40% | 0.20% | 0.20% | |
| 11:00 | CAD | BoC CPI Core Y/Y Aug | 1.90% | 1.60% | 1.60% | |
| 14:00 | USD | Existing Home Sales Aug | 4.75M | 4.67M | ||
| 14:30 | USD | Crude Oil Inventories | -1.6M | -6.7M | ||
| 18:15 | USD | FOMC Rate Decision | 0.25% | 0.25% |
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