Hollande says Oct 19 is The Day; Will Bernanke delay it too? USD seems vulnerable
FXstreet.com (San Francisco) - In a press release after his meeting with Spanish PM Mariano Rajoy, Francois Hollande affirmed that European leaders "have postponed too many time decisions" on "structural measures" and it has raised doubts across the market." Hollande says that they will "take long term decisions in the European Council of Oct 19."
Markets were assuming that the "ECB is up to something big" as Kathy Lien commented in the previous days, but October 19 seems to far in market terms. "The ECB again needs to act, as market hopes are extremely high. Past month, hopes were high and EURUSD rose 100 pips in a few minutes before the announcement, only to lost them back on Draghi's lack of action," remember Valeria Bednarik, FXstreet.com Chief analyst. "This time the situation is exactly the same: investors are buoyed on Euro on hopes the ECB will resume bond buying at least; a cap to yields differential have also been among market talks, and can be announced. A rate cut on the other hand, is more unlikely."
"Anyway, either the ECB provides some active solution to the crisis," points Bednarik, "or market disappointment will be big enough to smash the EUR across the board."
The Euro remained calmed following Hollande and Rajoy speech but IFM's official said that as far as "Spain has not requested IMF assistance", the "IFM is not working on a plan". Then market was shocked and risk aversion fly for a while with the EURUSD broking its daily range to the downside and clearing the 1.2500 psychological support, and stretching to a 2-day low of 1.2487. GBPUSD also dropped more than 90 pips in minutes toward a low of 1.5780.
Following this movement, major currencies continued trading quiet as investors wait to see if the Federal Reserve Chairman Ben Bernanke delivers hints on more monetary stimulus at a meeting of central bankers in Jackson Hole on Friday.
But market is not as sure as it was. Reuters poll has shown diminishing expectations for QE3. 43% of economist are expecting QE3 on September 13, a decline from 70% in July.
"Bernanke does not have enough evidence to make any definitive commitments to monetary policy on Friday," comments Kathy Lien, Managing Director at BK. "With this week's economic data and Beige Book report providing no new insight into what the Fed Chairman will say at Jackson Hole, investors are biding their time and keeping pre-positioning at minimum before the big event."
While the US dollar remains vulnerable ahead of Fed's Chairman speech, uncertainty over central banks action coupled with disappointing data in the US and the eurozone, put global stocks under pressure, with Wall Street closing Thursday's session with broad declines.
"Trading remains choppy but the dollar retains a soft tone vs. the majors ahead of Friday", says the BBH analyst team. "However, as we have seen in the past, dollar selling ahead of perceived QE3 risks have invariably been followed by a recovery in the greenback when the Fed disappoints. We continue to think Bernanke will not signal QE3 this Friday, and so would look for levels to get short euros on Friday".
However, "dollar gains will likely be limited given the event risk next Thursday (ECB meeting) and Friday (US jobs report)", says BBH.
Camilla Sutton, analyst at Scotiabank notes that, "supporting EUR are hopes that next week's event risk proves positive, expectation that the FOMC will remain dovish, a hesitancy to be short ahead of next week's calendar, Eurobond supportive comments from French PM Hollande and a suggestion from Premier Wen that China is still willing to invest in the European bond market", while data has been mixed, with rising inflation a key concern.
In the middle term, "we expect September to be volatile for EUR, but that markets grow impatient with the timeline for a European plan and growth slows further, which ultimately weighs on the currency", said the analyst. "We expect EUR to end September closer to 1.20 than 1.25".
At this moment, EURUSD quotes 1.2507, down 0.18% so far today. As for technical levels, next supports could be found at 1.2485, 1.2460 and 1.2430, while on the upside, resistances could now be found at 1.2530, 1.2565 and 1.2590.
"Trading remains choppy but the dollar remains vulnerable ahead of Friday", comment BBH analysts. "The euro remains bid but so far is unable to break last week's high near $1.2600. This level should continue to provide some resistance near-term but an eventual break could see the euro extend its gains towards $1.2700".
Wall Street indexes closed lower with the Dow Jones declining 0.81%, the S&P 500 losing 0.78% and the Nasdaq falling 1.05%.
Investors are waiting to see Ben Bernanke delivers hints on more monetary stimulus at Jackson Hole and "EURUSD and other major currencies trade in narrow ranges ahead of Bernanke's speech," commented Kathy Lien, but as noted before, this week's reports "provided no new insight into what the Fed Chairman will say."
The best way seems to be wait and see mode for tomorrow session. Curt Wehrley, Currency Coach at FxBootcamp, asked in a FXstreet.com webinar for "just be careful tomorrow!" and Mauricio Carrillo from FXstreet.com agreed with him in his twitter account saying "stay calm and let the dust settle down."
Markets were assuming that the "ECB is up to something big" as Kathy Lien commented in the previous days, but October 19 seems to far in market terms. "The ECB again needs to act, as market hopes are extremely high. Past month, hopes were high and EURUSD rose 100 pips in a few minutes before the announcement, only to lost them back on Draghi's lack of action," remember Valeria Bednarik, FXstreet.com Chief analyst. "This time the situation is exactly the same: investors are buoyed on Euro on hopes the ECB will resume bond buying at least; a cap to yields differential have also been among market talks, and can be announced. A rate cut on the other hand, is more unlikely."
"Anyway, either the ECB provides some active solution to the crisis," points Bednarik, "or market disappointment will be big enough to smash the EUR across the board."
The Euro remained calmed following Hollande and Rajoy speech but IFM's official said that as far as "Spain has not requested IMF assistance", the "IFM is not working on a plan". Then market was shocked and risk aversion fly for a while with the EURUSD broking its daily range to the downside and clearing the 1.2500 psychological support, and stretching to a 2-day low of 1.2487. GBPUSD also dropped more than 90 pips in minutes toward a low of 1.5780.
Following this movement, major currencies continued trading quiet as investors wait to see if the Federal Reserve Chairman Ben Bernanke delivers hints on more monetary stimulus at a meeting of central bankers in Jackson Hole on Friday.
But market is not as sure as it was. Reuters poll has shown diminishing expectations for QE3. 43% of economist are expecting QE3 on September 13, a decline from 70% in July.
"Bernanke does not have enough evidence to make any definitive commitments to monetary policy on Friday," comments Kathy Lien, Managing Director at BK. "With this week's economic data and Beige Book report providing no new insight into what the Fed Chairman will say at Jackson Hole, investors are biding their time and keeping pre-positioning at minimum before the big event."
While the US dollar remains vulnerable ahead of Fed's Chairman speech, uncertainty over central banks action coupled with disappointing data in the US and the eurozone, put global stocks under pressure, with Wall Street closing Thursday's session with broad declines.
"Trading remains choppy but the dollar retains a soft tone vs. the majors ahead of Friday", says the BBH analyst team. "However, as we have seen in the past, dollar selling ahead of perceived QE3 risks have invariably been followed by a recovery in the greenback when the Fed disappoints. We continue to think Bernanke will not signal QE3 this Friday, and so would look for levels to get short euros on Friday".
However, "dollar gains will likely be limited given the event risk next Thursday (ECB meeting) and Friday (US jobs report)", says BBH.
Camilla Sutton, analyst at Scotiabank notes that, "supporting EUR are hopes that next week's event risk proves positive, expectation that the FOMC will remain dovish, a hesitancy to be short ahead of next week's calendar, Eurobond supportive comments from French PM Hollande and a suggestion from Premier Wen that China is still willing to invest in the European bond market", while data has been mixed, with rising inflation a key concern.
In the middle term, "we expect September to be volatile for EUR, but that markets grow impatient with the timeline for a European plan and growth slows further, which ultimately weighs on the currency", said the analyst. "We expect EUR to end September closer to 1.20 than 1.25".
At this moment, EURUSD quotes 1.2507, down 0.18% so far today. As for technical levels, next supports could be found at 1.2485, 1.2460 and 1.2430, while on the upside, resistances could now be found at 1.2530, 1.2565 and 1.2590.
"Trading remains choppy but the dollar remains vulnerable ahead of Friday", comment BBH analysts. "The euro remains bid but so far is unable to break last week's high near $1.2600. This level should continue to provide some resistance near-term but an eventual break could see the euro extend its gains towards $1.2700".
Wall Street indexes closed lower with the Dow Jones declining 0.81%, the S&P 500 losing 0.78% and the Nasdaq falling 1.05%.
Investors are waiting to see Ben Bernanke delivers hints on more monetary stimulus at Jackson Hole and "EURUSD and other major currencies trade in narrow ranges ahead of Bernanke's speech," commented Kathy Lien, but as noted before, this week's reports "provided no new insight into what the Fed Chairman will say."
The best way seems to be wait and see mode for tomorrow session. Curt Wehrley, Currency Coach at FxBootcamp, asked in a FXstreet.com webinar for "just be careful tomorrow!" and Mauricio Carrillo from FXstreet.com agreed with him in his twitter account saying "stay calm and let the dust settle down."
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