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Thread: Re: Daily Market Overview by IFC Markets

  1. #11
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    US Dollar Index Defies U.S. Government Closure, Eyes on ECB Conference

    Despite the U.S. government shut down the Wall Street closed in green yesterday looking for a quick break through of the budget gridlock. The S&P 500 rose by 0.80% to 1,695, Dow Jones Industrial Average Index gained 0.41% to 15,191.70 and NASDAQ climbed by 1.23%. The US dollar index recovered against previous expectations that uncertainty would weigh on the greenback. The US dollar index bounced up from yesterday support at 79.84 to as high as 80.25.

    Moreover, market participants are betting that U.S government closure would be short and soon Republican and Democrats would find a solution. However, should we see further enhancement of gap that separates them, uncertainty would definitely weigh over risk appetite and stocks would start the downside. Ahead lies one more high risk event, on October 17 measures applied earlier to avoid hitting U.S. borrowing limit would be outdated and current dispute between lawmakers could impact their decision also on Debt Ceiling, driving U.S government to default.

    The Euro against the greenback softened from 8-month peak at 1.3587 to support at 1.3506 ahead of ECB rate decision today. Mario Draghi is expected to hold key rate unchanged at record low at 0.50% while he said the previous week that another round of long-term refinancing operation (LTRO) is still a choice.

    Thus, investors are closely monitoring ECB press conference today for further clues, generally though is not anticipated another round of LTRO to be announced today but more likely until the end of the year or ECB is using it as a threat to hold market interest rates under control. In any way Mario Draghi could be more dovish today in an attempt to ease the common currency further and support its economy. To close, another risk for Euro-zone financial stability is that Italian Prime Minister faces today confidence vote by the parliament after Berlusconi’s party withdrew from government coalition, however many RPs of Berlusconi’s party said that would vote for Prime minister Enrico Letta to keep its government afloat.

    Elsewhere, the USDJPY is sliding on a slippery slope reaching new monthly low at 97.35 since the Japanese Yen is appreciated as a safe haven currency. The AUDUSD was under selling pressure falling by -0.62% from 0.9406 to 0.9348, on Wednesday morning amid sluggish Australian Building Approvals and widening Trade Deficit.

  2. #12
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    US Fiscal Budget Deadlock Goes On, Debt Ceiling Looms, Euro Surges VS Greenback

    The US dollar was smashed across the board losing the most against the Euro and the Japanese Yen as budget impasse extends to next week. Yesterday meeting between Barack Obama and congressional leaders didn’t changed anything with both sides repeating themselves. Republicans want to use 2014 budget and debt ceiling to increase pressure on Obama to delay it health-care program. Every week the U.S. government is shut down, 0.1% is trimmed from economic growth and failure to expand the $16.7B debt ceiling by Oct. 17 would have greater and global implications.

    Moreover, yesterday the ADP Report said that in September employment excluding farming and public sector increased by 166K, less than projected rise of 177K adding pressure on the greenback. The US dollar index retreated below key support at 80.00 increasing technical downside bias and is likely to continue towards next support at 78.95.

    The common currency versus the greenback bounced up to 1.3622 leaving behind its 1.3568/1.3464 range zone after political crisis in Italy resolved. Berlusconi changed his mind because he saw his fellow RPs abandoning him. Eventually the five-month coalition government gained confidence vote and remains in power. At the same time, ECB held key rate at record low at 0.50% and President Mario Draghi said that accommodative policy would remain in place for an extended period and inclined that ECB was ready to use LTRO. The EURUSD remains bullish and in an uptrend with fundamentals supporting it until now, thus in our view we could see even higher prices.

    Elsewhere, the GBPUSD remained mostly unchanged fluctuating around 1.6218, with Halifax HPI, released as of typing, displaying that increased by 0.3% in September like in August but disappointing expectations of 0.6%. Lastly, the Crude Oil eased to 101.26 yesterday as Oil Inventories increased unexpectedly to 5.5M barrels for the previous week up compared to 2.6M barrels two weeks ago and higher than expectations of 2.4M.

    On the data front, Euro-zone Services PMIs are eyed while later on today concerning Jobless Claims we are not sure will be released, as well as tomorrow’s NFP are uncertain due to U.S statistical services closure.

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    BOJ Holds Monetary Stance, NFP Could Be Delayed, GBPUSD Waving Down

    U.S government shut down continues for a fourth day spreading fears that Democrats and Republicans would be unable to agree on looming Debt Ceiling as well. No agreement on 2014 fiscal budget is reducing growth by 0.2% per week according to Goldman Sachs while there is an additional pressure by declining reduction as federal workers are not paid. Indirectly though economy could be further hurt by falling confidence in business and consumption.

    The first signal of a damaged confidence came out yesterday by falling ISM Non-Manufacturing PMI to 54.4 in September, down from 58.6 in August and lower than expected at 57.2 and that increased pressure on the greenback which was losing against its most major currency pairs.

    See more: BOJ Holds Monetary Stance, NFP Could Be Delayed, GBPUSD Waving Down | IFC Markets

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    U.S Debt Ceiling Talks Eyed, Risk Appetite Squeezed as U.S Fiscal Gridlock Continues

    The new week starts with U.S. Government remaining closed for one week now with talks between Democrats and Republicans intensifying during the weekend. Republican House Speaker John Boehner is accusing the government for not discussing while at the same time he sets preconditions over raising debt ceiling. U.S. shut down continuation impasse is now really spreading fear among market participants who see that the same gridlock could extend to debt ceiling issue with more serious effects over financial markets.

    John Boehner said during the weekend that there are not enough votes in the U.S. House of Representative to approve raising borrowing limit resolution without President Barack Obama giving something in return from health care law. Investors are now seriously considering the possibility of US government defaulting on its debt payments. U.S. Treasury Secretary Jack Lew said that would exhaust all extraordinary measures to keep debt below $16.7B but on October 17 United States will run out of the ability to borrow with only $30B in hand to meet obligations that can run to $60B per day.

    Asian stocks dropped due to risk-off on fiscal impasse in U.S and concerns for a potential default of the largest economy in the world. NIKKEI 225 declined by 1.22% to 13,853.32 , Hang Seng lost by 0.75% and S&P/ASX 200 slipped by 0.90%. The USDJPY is retreating as traders seek for safe place to put their money and thus increasing demand for the Japanese Yen, the pair opened with a negative trading gap at 97.29 and dipped below support at 96.92 to a new monthly low at 96.88.

    Risk appetite was further squeezed as the World Bank cut growth forecasts for China from 8.3% the forecasted in April to 7.5% for this year, for the 2014 China is expected to grew by 7.7% down from previous estimation of 8.0%.The World Bank also reduce its growth estimation for other East Asian developing economies as well.

    As a consequence USDCHF fell this morning from 0.9065 to 0.9027 amid demand for Swissy increases as investors risk appetite worsens. At the same time the AUDUSD formed a reversal pattern the previous week with negative developments during the weekend triggering downside to breach support at 0.9421 and to drop as low as 0.9390, the pair is likely to continue its bearish development as U.S. fiscal and debt ceiling impasse continues.

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    U.S Shut Down and Debt Ceiling Still Dominate Financial Markets

    Like the previous days U.S government remains closed down and there has been no progress regarding debt ceiling so the situation is the same, although as we approach October 17 and nothing changes risk appetite is further squeezed. Last night S&P 500 dropped by 0.85% and Dow Jones Industrial Average declined by 0.90% reflecting sentiment worsening.

    Still, Asian equities recovered today after yesterday’s losing trading with NIKKEI 225 advancing by 0.30% and Hang Seng gaining by 0.93%, despite disappointing Japanese Current Account and weaker Chinese HSBC Services PMI. Japan’s current account surplus stood at ¥161.5B for August while was estimated to be at ¥520.0B and was down from ¥577.3B the previous month. The Japanese Yen weakened against the US dollar and that backed the USDJPY to surge from 96.56 to 97.15. In addition to that prices bounced up amid short covering following recent sliding to fresh lows.

    The US dollar index yesterday was under heavy pressure and eventually drew support line at 79.86 as budget deadlock is entering new phase after House Speaker John Boehner said that it has “no clear votes for raising debt ceiling”. That is transmitting political impasse to U.S debt ceiling issue creating possibilities that U.S could default on its obligations. Market has not priced a U.S default as most of the economists are expecting that would be resolved by end of this week, also traders would grab on any development toward resolution. Obama said yesterday that he would accept a short-term raise in borrowing limit to avoid default and perhaps that’s why the US dollar recovered back many of its Monday losses rising back to 80.00.

    To close, we saw the GBPUSD climbing to resistance at 1.61 yesterday and earlier today retraced mildly at 1.6074 looking ahead for the MPC rate statement on Thursday, where no monetary changes are expected by Bank of England. The EURUSD is still fluctuating between 1.3591/1.3560 sideways zone with news coming from US being the main driver.

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    Yellen Next Fed Chairman Raises Risk Capped by U.S Political Impasse and IMF Outlook Cut

    As the political standoff that drove U.S government to closure and is now threatening the world with a U.S default continues, the Japanese Yen was weakening on Barack Obama’s decision to nominate Janet Yellen to succeed Ben Bernanke at Fed’s head next year. Janet Yellen is considered quite dovish and that interpreted by market that Fed is likely to remain accommodative for a longer period, boosting demand for riskier assets and thus setting pressure on the Yen.

    Nonetheless, Barack Obama repeated that would talk with House speaker John Boehner after the shutdown ends and the risk of default is eliminated, though Republicans insist on spending cuts and modifications on Obamacare law.

    See more: Yellen Next Fed Chairman Raises Risk Capped by U.S Political Impasse and IMF Outlook Cut | IFC Markets

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    Greenback Appreciates on Yellen, FED Minutes and Hopes of Political Break Through

    The greenback was gaining ground across the board against its major counterparties after Janet Yellen was nominated as the next Fed Chairman, coupled by Fed Minutes of the 17-18 September meeting and eventually there are some chances for short term deal on debt limit to avoid default. The US dollar index advanced as high as 80.55 making its biggest corrective move after a month of declines.
    To further look into the key drivers of FX market, we firstly consider the greenback appreciated due to uncertainty ruled out about who would succeed Ben Bernanke, despite that Janet Yellen is perceived as a dove among market participants,
    Secondly, the release of the minutes showed that FOMC members talked a lot about moderating asset purchases, with some suggesting tapering by a small amount to signal that Fed moves cautiously.

    See more: Greenback Appreciates on Yellen, FED Minutes and Hopes of Political Break Through | IFC Markets

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    Failure to Break Political Gridlock Raises Risk of US Default, Nearing Deadline of Oct. 17

    Risk appetite is fading as US lawmakers failed to agree on Saturday on extending the upper limit of the US debt above $16.7T. Christine Lagarde, head of IMF warned for a “massive disruption” to the global financial markets and real economy if the borrowing limit is not raised before the 17th of October.

    On Friday, market participants saw White House meeting and talks over a short-term deal optimistically with global indices rising substantially however as talks failed during the weekend risk sentiment weighed. The S&P/ASX 200 declined by 0.44% while NIKKEI 225 is closed today on Health Sports Day. Moreover, the Senate and the House are still going to meet today on Columbus Day and US is on holiday, however hopes for resolution are weak amid Republicans have the majority of votes in the House and their conservatives are not willing to make any concessions to Barack Obama.

    See more: Failure to Break Political Gridlock Raises Risk of US Default, Nearing Deadline of Oct. 17 | IFC Markets

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    Optimism Returns on Possible Debt Deal on Tuesday, Aussie Gains

    Hopes that US policymakers get closer to a political break through and that has improved market participants’ optimism leading risk appetite higher. US equities eventually closed in positive light after beginning in negative territory, with S&P 500 advancing by 0.41%, Dow Jones Industrial increasing by 0.42% and NASDAQ gaining by 0.62%. Asian shares followed as NIKKEI 225 was by 0.26% higher and Hang Seng climbed by 0.38%.

    Optimism among investors grew substantially yesterday after Harry Reid, a Senate Democrat majority leader and its Republican counterparty Mitch McConnel said that on Tuesday a bipartisan deal may be announced that would extend US debt ceiling and fund government budget. What is discussed for a short term solution is that federal government would be funded until January 15 2014 and borrowing limit would be increased until February 15.

    See more: Optimism Returns on Possible Debt Deal on Tuesday, Aussie Gains | IFC Markets

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    All Eyes on Last Chance to Break Through US Political Impasse

    There has been no progress on Tuesday regarding US debt ceiling impasse, contrary to what investors were hoping. In addition, Fitch rating agency placed the United States triple A rating on watch negative. Earlier, Empire Manufacturing dropped to 1.5 for October, while was projected at 8.2 and was down compared to 6.3 figure in September, indicating New York manufacturers confidence has weakened after a more than a 2-week government shut down. However, hopes persist in financial markets that a deal would be concluded on the last day before 17 of October when US likely will not be able to borrow to meet its obligations.

    US stocks closed in red color as traders were disappointed by failure to reach an agreement on lifting borrowing limit and funding government that is closed for a third week now. The S&P 500 declined by 0.71% to 1,698, Dow Jones lost 133.25 points to end at 15,168 and NASDAQ dropped by 0.56%. Asian stocks followed the negative path further weighed by Fitch placing US to negative watch. Shanghai Composite was down by 2.10% and Hang Seng declined by 0.77% while NIKKEI 225 was up by 0.18% contrary to overall bias.

    The US dollar index trimmed during US session the most of its hardly gained ground on European session by falling from cap at 80.67 to 80.35. In general we saw the US dollar retreating against safer currencies like Japanese Yen and Swiss franc during the US session with the USDJPY returning to support at 98.08 and USDCHF falling back to 0.9120 after drawing a resistance line at 0.9170. We would expect a last minute deal to be sealed, otherwise we don’t want to think about the global financial implications. Last two weeks of shut down harmed US economy growth by more than 0.4% and thus FED is likely to keep unchanged asset purchases setting pressure on the greenback . Also, last minute lift of the debt limit may bring a US downgrade, therefore over the medium term we would expect a weaker US dollar.

    Concerning European currencies, the Euro contra the greenback took advantage of the disappointment over the US lawmakers’ failure to agree and recovered as high as 1.3534 before extending into a consolidation momentum. Moreover, the Euro was also underpinned by stronger than expected German ZEW economic sentiment indicator. The GBPUSD remains steady in 1.6016/1.5913 tight sideways zone ahead of employment data today.

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