Euro turns upward as US stocks give back gains

2015-09-21 00:00 S&P 500 up just 5 pointsBiotech stocks are under pressure and the Nasdaq has fallen into negative territory. The S&P 500 is up just 5 points to 1963 after rising as high as 1979.One of the catalysts was a tweet from US Presidential candidate Hilary Clinton lamented price gouging in pharma and said tomorrow she will outline a plan "to take it on."The negative correlation with EUR/USD and stocks is rocky at best. We don't need to look beyond Friday for an example as stocks tumbled and so did the euro. However, in general the euro has tended to strengthen on soft stock markets.

Source link: 
http://news.forexlive.com/!/euro-turns-upward-as-us-stocks-give-back-gains-20150921

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China's Li says there is no basis for further yuan depreciation

2015-09-21 00:00 Chinese premier out on ReutersChina aims to develop open transparent capital marketsChina does not want to engage in a currency waraiming for long term stability in capital markets           Chinese premier Li - No currency war with yuan depreciation

Source link: 
http://news.forexlive.com/!/chinas-li-says-there-is-no-basis-for-further-yuan-depreciation-20150921

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GBPUSD moves above broken trend line

Trend line break at the 1.5572 area

The GBPUSD is pushing above topside trend line resistance at the 1.5572 level (see daily chart below). The price is also above the 61.8% of the move down from the August high to the September low. That level comes in at 1.55646  These levels will now be close support for the pair. 

The next major targets comes in at the 1.5670-1.5689 area.  These were swing highs from July.   Then 1.5716-22  

Source: http://technical-analysis.forexlive.com/!/forex-technical-analysis-gbpusd-moves-above-broken-trend-line-20150917

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USD/JPY continues to cruise higher, what's next

USD/JPY now nearly flat on the session

After falling as low as 119.06, USD/JPY is threatening 120.00. Some minor offers may block its path but the place to watch is stocks.

At some point, you have to pick a side in trades like the Fed. From where I stand it's dovish and that's good for stocks and generally bad for the dollar. But one place it's 'less bad' is USD/JPY because the yen slides on risk appetite.

I don't understand why stocks have been under so much pressure. The ebb and flow of a single day is hard to predict or even to understand in hindsight but I think stocks could finish the day higher and that will spell more gains for USD/JPY. I've been buying both today.

Sources: http://technical-analysis.forexlive.com/!/usdjpy-continues-to-cruise-higher-20150918

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Fed Mouthpiece Confirms FOMC Concerns On Global Market Turmoil

Just hours ago, we asked if the Fed's unofficial media mouthpiece had leaked the Fed decision when a WSJ colleague took to Twitter and, quoting Jon Hilsenrath, said the following: "For Yellen, who likes to arrive three hours early for a flight, raising rates without preparing markets would be out of character." To wit:

So did Hilsenrath just "prepare" markets with a two hour advance notice of what to expect? Or did he simply add to the Fed's communication failure by "hinting" the market to expect one thing, while Yellen will unveil the opposite? Not even Gartman has the answer to that.

 Well as it turns out, the FOMC has elected to stand pat in the face of mounting global risks and rising volatility. Employing his hallmark lightspeed, embargo-assisted copy editing skills, the Fed whisperer churned out the following bit of crisply-worded analysis for anyone having trouble interpreting the FOMC statement.
Via WSJ:

The Federal Reserve left short-term interest rates unchanged after weeks of market-churning debate at the central bank about whether it was time to end an era of near-zero rates in acknowledgment of the stronger domestic U.S. economy and job market.

A large majority of Fed officials still believe the central bank will raise rates before year-end, but the central bank showed a bit less conviction on that point. In June, 15 of 17 officials said they expected to raise rates this year, according to official projections released with the Fed’s policy statement; on Thursday the number of people who expected to raise rates this year slipped to 13.

The Fed also indicated in its policy statement trepidations about recent turbulence in financial markets and in economies abroad. “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near-term,” the Fed said. It added that it was “monitoring developments abroad,” a signal of the Fed’s heightened state of worry that slow growth outside the U.S. could hurt the American economy.

The fact most officials still believe they will move rates up this year suggests many believe these concerns will subside in the weeks ahead.

Fed officials have been signaling for months they plan to raise rates this year, seven years after pushing them to exceptionally low levels in December 2008 in response to financial crisis. Central to their optimism is a view labor markets are improving rapidly and reducing slack in the economy, a precursor to some lift in inflation. Unemployment was 5.1% in August, in the range officials expect to see over the long term. Inflation has been running below 2% for more than three years.

“On balance, labor market indicators show that underutilization of labor resources has diminished since early this year,” the Fed said.

As recently as July, Fed officials appeared to be on track to move at this week’s policy meeting, but a variety of factors gave them pause, including a stronger dollar, stock- and bond-market volatility and signs of a slowdown in China, the world’s second-largest economy.

They are now on watch to make sure these threats don’t turn into a bigger problem for the U.S. economy. A strong dollar, for instance, could put downward pressure on exports and imported inflation, movements at odds with the Fed efforts to spur economic growth and raise currently-low inflation.

They appear to expect—somewhat more tentatively than before—that they will proceed with rate increases once they get evidence these developments won’t fundamentally shift the economic outlook.

The Fed said, as it has before, it would raise rates when it saw “some further improvement” in labor markets and when officials become “reasonably confident” that inflation will rise toward 2% in the medium term.

Before the meeting, investors had come to believe the Fed wouldn’t move. In futures markets before the meeting, traders attached a 27% probability to a rate increase Thursday, but a 64% probability to an increase by December.

Though Fed officials still expect to move rates up this year, their projected path of rates has become shallower in recent months. The median projection for rates at the end of 2015 dropped to 0.375% from 0.625% in June. It also dropped to 1.375% at the end of 2016 from 1.625% projected in June. It fell to 2.625% at the end of 2017 from 2.875% projected in June. In the long-run the Fed projected the fed funds rate will reach 3.5%, down from an earlier estimate of 3.75%.

One official called for a negative interest rate in 2015 and 2016, something that has been tried in several European countries to boost growth and inflation. The Fed doesn’t identify which officials make specific projections.

One reason for the shifting outlook: Officials have become a bit less optimistic about the economy’s long-run growth potential. They projected the economy will grow at a rate between 1.8% and 2.2% in the long-run, down from their June estimate of growth of 2.0% to 2.3% in the long-run. A more lumbering economy has less capacity to bear much higher rates.

The Fed’s economic projections underscored the challenge officials face in reading the current economic backdrop. Fed officials reduced their estimates for the path of the unemployment rate. They see it reaching 5.0% by year end and 4.8% by the end of next year, a lower rate than previous estimates of 5.3% and 5.1% respectively.

Textbooks suggest that as estimates for the jobless rate fall, estimates for inflation should rise. But officials reduced their inflation estimates, thanks in part to downward pressures from lower oil prices and a stronger dollar. They don’t see the inflation rate, as measured by the Commerce Department’s personal consumption expenditure price index, reaching their goal of 2% until 2018, near the end of Janet Yellen’s first term as chairwoman of the central bank.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, dissented. He wanted to raise the Fed’s target interest rate by a quarter percentage point.

With market expectations for a rate move Thursday so low, raising rates now would have been a gamble for Ms. Yellen, who is known around the central bank for being risk-averse. An unexpected increase might have shaken or confused investors. In holding off, Ms. Yellen is sticking to a course of setting the stage for a move carefully.

Investors now await Ms. Yellen’s press conference, at which she’ll elaborate on the central bank’s views on the outlook for the economy and policy. She is scheduled to deliver a major speech next week at the University of Massachusetts in Amherst.

 Sources: http://www.zerohedge.com/news/2015-09-17/fed-mouthpiece-confirms-fomc-concerns-global-market-turmoil

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What the Federal Reserve will (and should) do today

Almost time to deliver the verdict

The dovish case, and this is what I think will happen, is that ultimately, the Fed won't have the confidence or perhaps the courage to hike because they're terrified that markets will kick and scream.

The World Bank, the IMF and G20 ministers  have warned Fed officials that if they hike there will be consequences. The biggest danger is from emerging markets. Brazil and other parts of Latin America and are particularly strained at the moment. The fear from the World Bank tighter credit and volatility will spark capital outflows. That can easily become a negative feedback loop in those markets and ultimately that will end in tears as weak emerging market growth spills back into the US.

The right call is for the Fed to maintain its wait-and-see stance then strongly telegraph a hike ahead of the December or January meeting. Unfortunately, I don't think the Fed will be that dovish and risk trades are vulnerable if they aren't, including stocks and commodity currencies.

If I'm wrong and the Fed stays dovish, pile into stocks and commodity currencies, especially CAD and AUD.

What if the Fed decides to compromise

There are certainly FOMC members who want to hike right now and some who will argue strongly against it.

In the middle is a large group that wants to hike but have a sense that it's a risk. So what happens? Compromise. They could settle on hike with a message that no more hikes are coming soon or could vote to hold rates today and deliver a hawkish message about October.

Both are mistakes and the market reaction would be largely the same - risk aversion, stock market selling, yen strength, Canadian dollar weakness but to different degrees.

The decision is due at 2 pm ET

For more on the Fed

• FOMC: Time for sense or more excuses?
• Citi has 2 FX plays for trading the FOMC
• JPMorgan says the FOMC decision on Thursday is a coin flip
• RBC "holding out hope" that the Fed will hike this week. Goldmans still looking at December
• Goldman Sachs previews the Federal Reserve decision on Sept 17
• Five Federal Reserve scenarios from Credit Suisse
• Here are the real odds of a Fed hike on Sept 17

Sources: http://news.forexlive.com/!/what-the-fed-will-and-should-do-today-00-20150917

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100 day MA today but not sustained

The 100 day MA at the 1.55185 level was broken yesterday with the high price reaching 1.5527 before moving back lower. Higher wages was the catalyst for a sharp moved higher in the GBPUSD yesterday.  The move higher continued today with the pair extending to the highest level since August 26th.  That pushed the price to 1.5548.  

Although higher, the path traveled has been a rocky one with swings up and down along the way (see the 5 minute chart below). The price managed to extend back up to the London morning session high, but was not able to break that level. That failure as led to a 50 or so pip move lower and in the process took the price back below the 100 day MA (we are currently trading above and below the MA as I type.

FOMC decision day jitters? Sure?  The fed is sitting on the fence and so is the market.  So going back closer to a comfortable place - like the 100 day MA makes sense. Let the Fed decide the next move.

If the Fed hikes, the gains over the last few days should see some erosion.  The downside targets become:

1. 1.5474 (high from Sept 10) 
2. 1.54386 - 50% of the surge higher over the last two days.  

There is a case that the BOE might take a "if the Fed can do it, so can we" attitude.  So keep an eye out for support levels to hold and the 50% of the move higher is a nice place to stall/stop. If it goes below that level some further back filling can be expected with the 1.5396-1.5412 another important line in the sand for the pair. The price going back to the end of August to September 10 price traded below that level.  Since September 10 most of the activity has been above.   Yes it was just below that area on Tuesday and Wednesday before the employment stats, but if that report changes the markets mind, the dip should stay in the RED box.  

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