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Dovish Fed left rates unchanged, Greek elections during the weekend

Forex News and Events

Outlook on Canada’s CPI report (By Arnaud Masset)

According to the latest survey, economists expect core inflation pressures to have weakened during the month of August. The gauge, which excludes the eight most volatile components and indirect taxes, is expected to have slowed down to 2.1%y/y in August from 2.4% a month earlier, while headline CPI is expected to remain stable at 1.3%y/y. We are a little more pessimistic regarding the latter and anticipate that the persistent weakness in crude oil prices and commodity prices in general will weigh on inflation levels. Moreover, the recent weakness in the Canadian dollar was not be able to offset disinflationary pressures, stemming from persistently low prices.

With the Federal Reserve holding fire yesterday and subdued inflation pressure in Canada, we think that a cut of the overnight lending rate by the BoC cannot be ruled out anymore. We believe that the BoC will give a boost to the Canadian economy as soon as October and so we are bearish on the CAD, even though some upside moves cannot be excluded in the short-term.

Fed holds off on a rate hike (by Yann Quelenn)

The FOMC decided to leave its rates unchanged at 0%-0.25%. Fed Chairwoman Janet Yellen stated that despite the improvement in the labour market, the Fed is still concerned by the fact that inflation sits well-below the longer-run objective of 2%. She added that lingering weak oil prices and lower import prices added downside pressure to inflation. It was also said that the Federal Reserve will be willing to increase rates once there is (even) further improvement in the labour market and more evidence that inflation will reach the 2% target. Indeed, part-time employment is elevated in the U.S and wage growth remains subdued.

We believe that the zero interest-rate policy and quantitative easing approaches have proven inefficient. We predicted that no rate hike would happen as data has been coming in mixed and still believe that quantitative easing 4 is not far off. Yellen added that even if a rate hike happens, monetary policy will remain accommodative. This really shows how worried the Federal Reserve is concerning the sustainability of the so-called U.S recovery. However, it transpires that Fed members have in fact increased their projections for economic growth this year, which is now expected to hit 2.1% this year and 2.3% in 2016.

The USD-complex has been weakened after the announcement even if the markets had already partially priced in a “no hike”. Nonetheless, new expectations will emerge for October and December and strong beliefs around the world’s first economy are still alive and will sustain the dollar at a strong level.

Greece’s snap elections (by Peter Rosenstreich)

With markets solely focussed on the FOMC, events in Europe have faded into the background. On September 20th, Greece will partake in its fifth general elections in six years. Yet, commitment to creditors severe austerity measures after coming to power based on dictate to reject financial servitude has eroded Mr. Tsipras’s popular backing. The pro-European opposition accused Mr. Tsipras of failing to negotiate effectively and using extremist bargaining tactics while the anti-austerity left believes he betrayed the populist clear “no” referendum vote. Opinion polls (which have been historically inaccurate) indicate that left-wing Syriza, run by former Prime Minister Alexis Tsipras, and the right-wing New Democracy, run by Vangelis Meimarakis are tied. The deciding votes rest on the exhausted, disenfranchised Greeks, which makes the results relatively random. Most people perceive Sunday’s elections to be a non-event since whichever future government is elected, Greece is still committed to those agreed austerity measures. Financial markets are not pricing in any real risk of this election derailing the reform process, however there is an outside chance that low turnout leads to a fragmented parliament. The failure of main parties to take seats could leave the door open for more extreme parties such as Popular Unity and Golden Dawn. This result, and resulting coalition government could put the reform package at risk or at least prolong the political uncertainty, a negative for the Greek economy and Europe. Elsewhere on the political theme, on the 27th of September Catalonia will elect its regional parliament. After the expected victory, it’s likely that the government will push for secession from Spain.

Please be informed that there will be no reports on September 21st 2015

Gold - Surging Higher

Forex News

Today's Key IssuesCountry/GMT
ECB's Coeure Speaks in ParisEUR/10:30
Bank of England Publishes Quarterly BulletinGBP/11:00
BOE's Andy Haldane Speaks in Portadown, Northern IrelandGBP/11:05
TCMB Turkey Survey of ExpectationsTRY/11:30
Aug CPI NSA MoM, exp 0.00%, last 0.10%CAD/12:30
Aug CPI YoY, exp 1.30%, last 1.30%CAD/12:30
Aug Consumer Price Index, exp 127.3, last 127.3CAD/12:30
Aug CPI Core MoM, exp 0.20%, last 0.00%CAD/12:30
Aug CPI Core YoY, exp 2.10%, last 2.40%CAD/12:30
Aug CPI SA MoM, last 0.20%CAD/12:30
Aug CPI Core SA MoM, last 0.20%CAD/12:30
Sep CNI Industrial Confidence, last 37.1BRL/14:00
Aug Leading Index, exp 0.20%, last -0.20%USD/14:00
2Q Household Change in Net Worth, last $1629BUSD/16:00
Italy Cabinet Meets To Discuss Draft Budget Plan For 2016EUR/16:00
Aug Formal Job Creation Total, exp -71700, last -157905BRL/22:00
Aug Tax Collections, exp 95000M, last 104868MBRL/22:00

The Risk Today

Yann Quelenn

EUR/USD is moving higher. The pair has broken hourly resistance at 1.1438 (01/09/2015 high) before bouncing back. Strong resistance lies at 1.1714 (24/08/2015 high). Strong support can be found at 1.1017 (18/08/2015 low). In the longer term, the symmetrical triangle from 2010-2014 favored further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support). We have broken the resistance at 1.1534 (03/02/2015 reaction high). We are entering an upside momentum.

GBP/USD is pushing higher and has broken the resistance implied by the upper bound of the uptrend channel. Hourly resistance at 1.5509 (27/08/2015 high) has been broken and hourly support is given at 1.5330 (15/09/2015 low). Stronger support is given at 1.5165 (04/09/2015 low). In the longer term, the technical structure looks like a recovery bottom whose maximum upside potential is given by the strong resistance at 1.6189 (Fibo 61% entrancement).

USD/JPY is moving in either direction around the 200-day moving average. Hourly support is given at 118.61 (04/09/2015 low). Stronger support can be found at 116.18 (24/08/2015 low). Hourly resistance can be found at 121.75 (28/08/2015 high). A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 118.18 (16/02/2015 low).

USD/CHF is pushing lower and has broken support at 0.9668 (14/09/2015 low). Hourly resistance lies at 0.9824 (09/09/2015 high). On the very short-term term, the technical structure is setting lower highs. However we remain bullish in the medium-term. In the long-term, the pair has broken resistance at 0.9448 suggesting the end of the downtrend. This reinstates the bullish trend. Key support can be found 0.8986 (30/01/2015 low).

Resistance and Support:


USDCAD Analysis: Support at 1.3070/1.3020, resistance at 1.3160/1.3200

After the Fed's decision to hold rates, what is the market reaction? The chart of the day is Dollar/Canadian dollar.
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Crude Thoughts

So, the market got it right and the Fed decided that rates would stay unchanged, having said what they did it looks like next year now before they think again. And it is what they said that caused the oil market to move so sharply after the announcement. Initially crude rose sharply as the idea of a weaker dollar excited traders but when the release was read to them it transpired that the reason that there was no change was because of worries about world economic growth. The Fed also stated
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