The AUDUSD got a boost from the PBOC yesterday, but the market has lost it’s momentum off the news.
Nevertheless the 100 hour MA (blue line in the chart below) continues to hold as support on the downside – for now at least. Staying above, keeps the buyers clinging to control (although just barely). The price move above the 100 hour moving average was the 1st break since September 8th.
I am concerned with the lack of follow-through momentum from yesterday’s break. We saw last week the much stronger employment report do little to for the upside. The buyers are trying to hold onto support, but it seems to me that a move back below the level would turn the bias back to the downside. Doing more watching though, with an eye on momentum (higher or lower).
AUDUSD above 100 hour MA but momentum is fading.
Lower inflation was worth about 16 pips to the USD/JPY and a tad more to EUR/USD but that might not be the end of the story. Not even a fall in the current account deficit could save the buck and we could see some shifting of expectation before the FOMC tonight.
Exports in the current account stood at $408.8bn from $399.5bn while imports also grew to $592.0bn from $581.9bn.
On the plus side the increases show that trade is growing. The one caveat to the deficit numbers is that there was “comprehensive restructuring ” of the economic accounts that came into effect in June this year. I’m not sure how much that may have skewed this data. Also the deficit on goods and services rose to $130.3bn from $124.5bn.
So a mixed bag of data but the eyes will be on whether it changes the market’s mind before tonight.
The USDJPY has backed off away from the all important ceiling at the 107.35/37 area (see post from yesterday) after the weaker than expected US CPI data. The price decline has taken the price down toward the 100 hour MA (blue line in the chart below) at the 107.16 level (low 107.135). The price is finding some support buyers against the level as the battle continues with the ceiling above and the 100 hour MA below.
USDJPY tests 100 hour MA after testing the ceiling. Technical battle continues.
Yesterday, the pair tried on a number of occasions to move below the level. Finally when there was a break off PBOC and FOMC rumors (that they would keep the wording in their statement today), the price fell to the bottom trend line support and bounced from there. The move back above the 100 hour MA reestablished support against the 100 hour MA level and the battle between support at the MA and resistance against the ceiling continued.
The same battle is being fought today.
On a break below the 100 hour MA (see green circles in the chart above), the next support targets will be at recent lows (at 106.78/79), bottom side trend line (at 106.70 currently), and the 200 hour MA (green line at 106.56 currently). I am expecting another look below and test of lower levels.
A move above the high and it is new 6 years highs. Look for momentum on a new high, and the ceiling to switch to a support floor.
The GBP is the strongest currency today (see http://www.forexlive.com/blog/2014/09/17/fomc-day-with-some-other-data-mixed-in-september-17-2014/) rising against all the major currencies – including the greenback. There was good and bad out of the UK and of course the Scotland Referendum is awaited tomorrow, but the buyers are comfortable at the moment.
GBPUSD moves toward the 50% target at the 1.63465. There should be a pause against the level will stops on a break.
From a technical perspective,the pair received a boost yesterday on the break back above the 100 and 200 hour moving averages (blue and green lines in the chart above). The subsequent high yesterday, extended above the high for the week before correcting back toward the 100 hour moving average in the New York afternoon session(see blue line test in the chart above)
That support held in the Asian session (with a positive bias as well), and European traders took the price toward the next target at the 1.63465 level. This level represents the 50% retracement of the move down from the September high (see chart below).
There should be some profit taking (a pause) against this level, but remember the next 24 hours will be filled with the ebbs and flows from the vote. If trader’s sentiment loses the fear from a potential yes vote (and today’s action supports that idea), they could take the price through this level (look for stops) and work on the next target at the 1.64164 area (61.8% retracement).
Looking at the 5 minute chart below, the price had it’s ups and downs with the economic data but has found support buyers against the trend line and the 100 bar MA (blue line in the chart below). Stay above and the buyers remain in control from an intraday perspective. Move below and there may be some lightening of positions.
The GBPUSD has been tracking above the trend line and 100 bar MA. RISK for the day.
- Prior 2.0%
- -0.2% vs 0.0% exp m/m. Prior +0.1%
- Core 1.7% vs 1.9% exp y/y. Prior 1.9%
- 0.0% vs 0.2% exp m/m. Prior 0.1%
- Real average hourly earnings 0.4% vs 0.0% prior m/m
- 0.4% vs 0.1% prior y/y
- Weekly earnings 0.4% vs 0.0% prior m/m. Unch 0.4% y/y
It’s the first time the core CPI hasn’t risen since Oct 2010. USD/JPY loses 16 pips to 107.14
Energy prices the biggest driver, as has been across most of the CPI numbers from the UK and Europe, falling 2.6% from -0.3% in July. Transportation also up there -1.5% vs -0.3% prior and ex-food and beverages commodities, -1.0% from -0.1% in July.
US Core CPI 17 09 2014
- Says China should avoid strong stimulus
- China has targeted RRR cut and open market operation tools
Not sure of the context of the last comment and whether it relates to the PBOC pumping news from yesterday.
The jury still seems very much out on whether the news yesterday was stimulus or to cover a short term liquidity speed bump.
For the UK and US the worry is not about jobs growth but about how quick prices will start to rise. As we saw this morning in the UK jobs data, earnings aren’t exactly rocketing. Europe has an issue with inflation but has many other bad elements it needs to fix. The US, despite the August jobs report is (as of now) a pretty steady ship but also lacks the wage growth needed to bring a second wind to the domestic economy.
At the bottom of the hour we get to see US CPI data for August. We’re expecting 1.9% vs 2.0% prior for the headline and an unchanged 1.9% for the core.
The Fed has said it is happy to see inflation moderately above target in the short term, but as we’ve seen time and time again, especially in Europe, inflation is not a genie you can control when it’s out of the bottle.
The risk to the Fed is that we get a prolonged period of high inflation while wages remain subdued. It will make it hard for them to turn to rates to contain any excess inflation when the man on the street is fighting to stay afloat, let alone keep on an even keel with prices.
We’re not there yet but it’s a scenario that is worth keeping an eye on as it could put the Fed, and the BOE in a very difficult position.
I shouldn’t think the market would be spooked by a rise to 2.1% or a fall to 1.7% but outside of those parameters the market may adjust its rate expectations. If we get a lower number and the dollar falls then that might not last long as the market is in ‘expectant Fed’ mode once again and will probably fade any moves lower.
If you look at the BOE Meeting Minutes, the list is more dovish than hawkish (see http://www.forexlive.com/blog/2014/09/17/boe-mpc-minutes-insufficient-price-pressure-to-justify-rate-rise/ ). Yes, Weale and McCafferty kept their vote for 0.25% rate hike again. So there was that element which is hawkish. However, the other stuff was more of a list of the concerns. Meanwhile, the Employment picture continued to improve with the Unemployment rate falling to 6-year lows, but the wage issue (i.e., slack) remains as the YoY take home pay remained at the all time low at 0.7%. Below is a historical look at the major employment components from the UK.
Unemployment at 6 year low. Wages at record lows (slack?)
Despite all the information today out of the UK – some good and some not so good - the GBP is the strongest currency of the majors as the next major event unfolds with the Scottish vote tomorrow. The market seems to be more comfortable with the “No” vote and may be looking for some unwind of the selling that has taken the pair down from 1.7189 to 1.6050 since July. It has been a long run. Nevertheless, there is additional risk of course so pick your battles and be sure to focus on the risk.. Trade smart. Don’t gamble.
The weakest currency is the NZD. Last week, the RBNZ said that the currency was still overvalued and was likely to have a significant fall. The Current Account showed a deficit of 1.065b overnight. GDP for the 2Q will be released later (6:45 PM ET) with the expectations of a 0.6% QoQ increase and 3.8% increase YoY (doesn’t seem too shabby, but it is old news). The NZD rallied in trading yesterday on the back of the PBOC liquidity infusion but those gains are being unwound in trading today.
Below is a list of the winners and losers.
The US will release CPI data, along with the Current Account Balance (-113.4B for 2Q estimate) at 8:30 AM ET. The NAHB Housing Market index is espected to rise to 56 from 55 last month. There is that little thing called the FOMC Rate Decision at 2 PM followed by Chair Yellen’s press conference at 2:30 PM. The rate will stay the same. The QE bond purchase pace will subtract 10B (only one more to go) and the statetment is “supposed” to keep words “considerable time” in the statement (read what Adam has to say HERE).
The Forex Winners and Losers for the day (% change vs the Major currency pairs)
Goldman Sachs does almost nothing to keep ‘client’ economic research from appearing everywhere.
Keep that in mind when you read Goldman Sachs’ preview of today’s FOMC meeting.
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