While the market sentiments have stabilized in the last few weeks,
the theme didn't change. Occupying investors' mind are the fear of
global recession as well and the never-ending European debt crisis.
There is increasing chance that Fed will announce some sort of QE3
problem later in the month. But markets are also getting increasingly
inconvinced by effectiveness of further easing from Fed on saving
economic recovery. DOW and S&P 500 spent most of the week
recovering, but the hard work was undone after a poor job report from US
and both indices indeed closed the week mildly lower. Safe haven assets
regained much ground last week with US 10 year yields closed below 2%
at 1.99%, just 4 points above the record low. German 10 yield bund
yields also dropped to a record low of 1.996 before closing at 2.01%.
Gold surged 3.15% on Friday at 1876.9 and is heading back to 1900. In
the currency markets, Swiss Franc rebounded strongly last week after SNB
refrained from announcing new measures to curb the currency's gains
while dollar index staged a strong rebound. Sentiments are vulnerable to
further deterioration this week and next before FOMC meets on September
20.
Economic data were generally poor. US August non-farm payroll showed
0k job growth, against expectation of 90k. 17k of private sector job
growth was offset by -17k government cuts. Gains for July was revised
down from 117k to 85k while that for June was also revised down from 46k
to 20k. Unemployment rate was unchanged at 9.1%. US consumer confidence
plunged to 44.5 in August. ISM manufacturing avoided dipping into
contraction region below 50 but did dropped slightly to 50.6 in August.
Eurozone PMI manufacturing was revised down to 49 in August, while UK
manufacturing PMI dropped to 49, both suggesting deeper contraction.
China manufacturing PMI recovered slightly to 50.9 in August but missed
expectation of 51.
The minutes of the August FOMC meeting unveiled that 'a few members'
preferred 'a more substantial move at this meeting'. The range of tools
that policymakers discussed to stimulate the economy included
reinforcing forward guidance about the likely path of monetary policy,
additional asset purchases, increasing the average maturity of
securities holdings, reducing the interest rate paid on excess reserve
balances. Policymakers did not show preference on the stimulating tools
but they 'agreed that the September meeting should be extended to two
days' as more time is needed for discussion.
Greece came back to spotlight again on worry that the country would
miss its7.4% budget deficit target, which is a key condition in funding
of the original EUR 100b bailout package and that was admitted by
Finance minister Evangelos Venizelos. IMF has confirmed that the
"mission has temporarily left Athens to allow the authorities to
complete technical work related to the 2012 budget and
growth-enhancing structural reforms". Greece is given ten days to come
up with proposals to put the austerity plan back on track and the talk
between Greece and IMF will resume on September 15. Greek two-year
yields soared above 47 percent.
On the other hand, there were increasing concern over Italy's
waffling on its austerity proposal. The latest revision involves a
increased crackdown on tax evasions which triggered criticism from many
parties. Also there were concerns that the new proposal will create EUR
7b hole in the EUR 45b austerity plan agreed on August 5. ECB stepped up
pressure on Italy as Trichet warned on Saturday that "it is essential
that the target which was announced to diminish the deficit will be
fully confirmed and implemented. And it's "absolutely decisive to
consolidate and reinforce the quality and the credibility of the Italian
strategy and of its creditworthiness".
Swiss Franc was notably stronger last week. Prior to Wednesday, where
SNB usually announce new measures, markets have been anticipate some
sort of announcements, like deposit taxes, to further curb Franc
strength. However, nothing happened. And there are speculations that
SNB is so far comfortable with EUR/CHF now well above parity and would
refrain from more intervention in near term. We'd anticipate some
more Franc strength in near termon risk aversion but will be cautious
on reversal as it's believed that SNB is strongly determined to
defend parity in EUR/CHF.
Technical Highlights
DOW's rebound from 10604 did extended further to as high as 11716
last week but faced strong resistance from 55 days EMA and 11862 prior
support and reversed. It's likely that such corrective recovery is
finished with three waves up already and the index is now vulnerable for
more downside ahead. We'll be cautiously bearish for 10604 in near
term, possibly later this month. Break there will resume the correct
down trend from 12876 towards 9614 cluster support (50% retracement of
6470 to 12876 at 9672. In any case, we'll stay bearish as long as 11862
resistance holds.
XAU/EUR staged a strong rebound last week and pull back from 1331.41
has apparently finished at 1180.07 already. XAU/EUR is holding well
above the rising 55 days EMA and the up trend is still intact. We're
cautiously bullish this week as long as 1280 minor support holds. Break
of 1331.41 will confirm up trend resumption for 261.8% projection of 954
to 1088 from 1021 at 1372 next.
Dollar index rebounded strongly last week but it's, after all, still
staying in range of 73.42/75.38. Outlook remains rather mixed for the
moment and we'll stay neutral before a break out. On the downside, below
73.42 will suggest that down trend from 88.70 is still in progress and
resuming for 72.69 and below. On the upside, above 75.38 will turn bias
to the upside for 76.71. Break there will in turn indicate that 72.69 is
already the medium term bottom and the trend has reversed.
The Week Ahead
Five central banks will meet this week, RBA, BoC, BoJ, BoE, ECB. ECB
will be of particular interest as Trichet hinted on possible downward
revision in its growth and inflation forecasts. We argued that ECB Remains on Hold Through 2012 and will look for some comments from Trichet to affirm this view. Also, BoJ is expected to remain accommodative
after FM Noda became the new PM. RBA is expected to be stand pat at
4.75% through 2011. There are speculations on rate cut but so far
they're not supported by economic data yet.
- Monday: Eurozone services PMI, Sentix Investor Confidence, retail sales; UK services PMI
- Tuesday: RBA rate decision; Swiss CPI; Eurozone GDP revision; US ISM non-manufacturing
- Wednesday: Australia GDP; BoJ rate decision; UK industrial and manufacturing production; BoC rate decision, Ivey PMI; Fed's Beige Book
- Thursday: Australia employment; Swiss unemployment; BoE rate decision; ECB rate decision; Canada building permits, trade balance; US trade balance, jobless claims.
- Friday: Japan GDP; China CPI; UK PPI, trade balance; Canada employment, housing starts.
USD/CAD Weekly Outlook
USD/CAD's consolidation from 1.0009 continued last week with a dip to
0.9725 but quickly rebounded. Current development suggests that such
consolidation is possibly finished already. Initial bias is mildly on
the upside for retesting 1.0009 first. Break will confirm resumption of
whole rise from 0.9406 and should target 61.8% retracement of 1.0851 to
0.9406 at 1.0299. However, break of 0.9725 will now dampen this bullish
view and will turn focus back to 0.9406 instead.
In the bigger picture, a medium term bottom is possibly formed at
0.9406 on bullish convergence condition in weekly MACD. Further rise is
in favor for a test on key resistance level at 1.0851 and break there
will confirm completion of the down trend from 2009 high of 1.3063.
However, sustained trading below 55 days EMA (now at 0.9743) will dampen
this bullish case and argue that down trend from 1.3063 (2009 high) is
still in progress for another low below 0.9406.
In the longer term picture, firstly, there is no clear indication
that the long term down trend from 2002 high of 1.6196 has reversed.
Secondly, the medium term fall from 1.3063 is so far looking corrective.
Hence, we're slightly favoring the case that price actions from 0.9056
are developing into a long term corrective pattern.
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