BoE’s Forbes sees no need for further stimulus | 23/09/16

23.09.2016, 11am

• BoE’s Forbes sees no need for further stimulus The British pound got a short-lived boost on Thursday, on comments from the BoE MPC member Kristin Forbes who said that the Brexit vote impact was less stormy than many expected. She also added that looking forward, she’s not convinced that additional easing will be required, assuming that the recent path of data continues. This would point to better BoE forecasts, and given that August’s Inflation Report forecasts won’t be confirmed, a rate cut in November would be less likely to happen. Even though GBP gave back all of its gains a few hours after the speech, similar comments by more BoE officials may push back expectations for another cut.

• Overnight, Japan’s Finance Minister Taro Aso said that the government must not rely solely on the Bank of Japan to boost economic growth and overcome deflationary stagnation. The nation needs to use all tools, fiscal, monetary and structural policies in order to accelerate the efforts. Aso also said that the government aims to have parliament swiftly enact a supplementary budget when its extraordinary session is convened on Sept. 26 to help boost the economy. These comments however didn’t came as a surprise, with Japanese equities and JPY little changed on these remarks. With no major market moving events from Japan on the agenda for the next few weeks and given that investors still digest the BoJ’s outcome, we would expect the currency to become hostage to money market flows and risk sentiment. For USD/JPY that means that it could stay range bounded with the psychological 100 level acting as the lower bound of the range.

• Today is a PMI day: During the European morning, we get the preliminary manufacturing and service-sector PMI data for September from several European countries and the Eurozone as a whole. Eurozone’s manufacturing index is expected to have declined somewhat, while the service-sector one is forecast to have remained unchanged. The composite index is expected to have ticked down. Given the ECB’s neutral stance at its latest policy meeting, we believe that relatively unchanged PMIs could be a sign of stability and thereby reinforce the Bank’s view that no additional stimulus is needed yet. This view is enhanced by the fact that the Bank’s latest easing measures (TLTRO II, corporate bond buying) are still working their way into the real economy. As a result, the reaction in the EUR is likely to remain limited.

• In the US, the preliminary Markit manufacturing PMI is coming out as well. Although this indicator is usually not a major market mover as investors pay more attention to the ISM index, given greenback’s increased sensitivity to incoming data, any disappointment could weaken the dollar somewhat.

• From Canada, we get the August CPI data. Headline inflation is expected to have accelerated to 1.4% yoy form 1.3% yoy the previous month, while the core rate is forecast to have slid to 2.0% yoy from 2.1% yoy. We believe that the risks surrounding these forecasts are tilted to the downside, and we base that on the collapse of the Price index of the Ivey PMI, which declined from the previous month. This would also be in line with the September BoC statement, where policymakers shifted to a somewhat dovish stance and indicated that the risks to the profile for inflation have tilted somewhat to the downside since July. As such, a decline in these rates could confirm the Bank’s view, and thereby raise the likelihood for the BoC to take action in the foreseeable future. Canada’s retails sales for July are also coming out.

• We have three speakers scheduled on Friday’s agenda: Atlanta Fed President Dennis Lockhart, Philadelphia Fed President Patrick Harker and Cleveland Fed President Loretta Mester. We think that Mester’s speech is likely to attract the most attention as she is one of the three Board members that voted for a hike on Wednesday. It will be interesting to hear her view on the state of the US economy and why rates should already be lifted.


EUR/USD is rejected by the 1.1260 zone

• EUR/USD continued trading higher on Thursday, but the advance was stopped near the 1.1260 (R3) resistance zone and the downside resistance line drawn from the peak of the 18th of August. Then, the rate started sliding and during the early European morning Friday, it is trading slightly below the 1.1200 (R1) hurdle. Given that the pair was rejected near the aforementioned downside resistance line, I would expect the slide to continue for a while. I would expect the bears to challenge the 1.1180 (S1) line soon, where a break is possible to pave the way for our next support level of 1.1150 (S2). Our short-term oscillators support the notion as well. The RSI edged down after it hit resistance at its 70 line and now looks to be headed towards its 50 line. The MACD, although positive, has started topping. As for the bigger picture, the pair is still trading within the sideways range between 1.0800 and 1.1500 and therefore, I would maintain my flat stance as far as the longer-term trend is concerned.

• Support: 1.1180 (S1), 1.1150 (S2), 1.1125 (S3)

• Resistance: 1.1200 (R1), 1.1220 (R2), 1.1260 (R3)


GBP/JPY traded higher after it hit support near 130.35

• GBP/JPY traded higher yesterday after it found support at the 130.35 (S2) hurdle. The advance was limited near the 132.35 (R1) resistance. Given that the rate is trading below the downside resistance line taken from the peak of the 2nd of September, I would consider the short-term outlook to stay negative. Therefore I would expect the bears to take the reins back at some point soon and push the rate below 131.40 (S1). Something like that is possible to aim for another test near 130.35 (S2). Taking a look at our short-term oscillators though, I see signs that the corrective rebound may continue for a while before sellers decide to shoot again. The RSI rebounded from below 30 and is now approaching its 50 line, while the MACD, although negative, has bottomed and crossed above its trigger line. Zooming out on the daily chart, I see that on the 16th of August, the pair failed to overcome the previous trough, defined by the low of the 6th of July. Therefore, I believe that a clear close below 129.15 is needed to confirm a forthcoming lower low on the daily chart and signal the resumption of the prevailing downtrend. For now, I remain flat with regards to the overall outlook.

• Support: 131.40 (S1), 130.35 (S2), 129.15 (S3)

• Resistance: 132.35 (R1), 133.40 (R2), 134.50 (R3)


AUD/USD slides but hits support at 0.7630

• AUD/USD traded lower after it hit resistance at 0.7675 (R1). Nevertheless, the pair triggered some buy orders near 0.7630 (S1) and recovered somewhat. The price structure on the 4-hour chart suggests a short-term uptrend and as such, I would expect the recovery to continue and perhaps challenge again the 0.7675 (R1) resistance. A decisive break above that hurdle would confirm a forthcoming higher high and is possible to open the way for the 0.7725 (R2) territory. Zooming out to the daily chart, I see that on the 15th of September the pair rebounded from the upside support line drawn from back at the low of the 20th of January. This is another reason I believe that the pair is poised to continue trading higher for a while.

• Support: 0.7630 (S1), 0.7600 (S2), 0.7565 (S3)

• Resistance: 0.7675 (R1), 0.7725 (R2), 0.7750 (R3)


Gold hits resistance near 1344 and slides

• Gold advanced yesterday, breaking above the 1337 (R1) resistance zone. However, the metal triggered some selling orders near our next resistance area of 1344 (R2) and the downside resistance line taken from back at the peak of the 11th of July. Subsequently, the price retreated and is now trading back below 1337 (R1). Although the short-term picture remains somewhat positive, I would like to see a clear break above 1344 (R2) before I get confident that the bulls are likely to stay in the driver’s seat. For now I see the likelihood for the corrective setback to continue for a while, perhaps to challenge the 1330 (S1) or 1325 (S2) support zones. Our short-term oscillators detect slowing momentum and corroborate my view. The RSI exited its above-70 territory, while the MACD, although positive, has topped and could fall below its trigger line soon. As for the broader trend, the fact that the metal stayed above the uptrend line drawn from the low of the 17th of December keeps the longer-term picture positive. However, as I already mentioned, a clear close above 1344 is needed to carry larger bullish implications.

• Support: 1330 (S1), 1325 (S2), 1318 (S3)

• Resistance: 1337 (R1), 1344 (R2), 1350 (R3)


WTI hits resistance near 46.70 and slides

• WTI traded higher on Thursday, but the advance was halted by the 46.70 (R1) resistance line and the prior upside support line, taken from the low of the 3rd of August. During the Asian morning Friday, the pair started sliding. With no clear trending structure on the 4-hour chart, I prefer to take the sidelines with regards to the short-term outlook. However, taking a look at our short-term oscillators, I see evidence that further retreat may be on the cards for now. The RSI exited its above-70 territory, while the MACD, although positive, shows signs of topping. A dip back below 45.70 (S1) is possible to confirm the case and perhaps aim for the next support of 44.80 (S2). Switching to the daily chart, I don’t see a clear trending structure here either. As a result, I would say sidelined with regards to the broader trend as well.

• Support: 45.70 S1), 44.80 (S2), 43.40 (S3)

• Resistance: 46.70 (R1), 48.00 (R2), 49.30 (R3)




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