Global FX: The Day After
The Fed decides not to taper: Dollar fell sharply against its G10 counterparts as Fed maintained its $85 billion in monthly asset-purchase program. The Fed surprised the markets as it was widely expected to begin tapering off its monthly bond-purchases program in a range of $5bn to $10bn. The Fed said that it wanted to see more signs of economic improvement before tapering and that will keep rates in the current historic low range of 0%-0.25% as long as the jobless rate remains above 6.5%.The Federal Reserve’s economic growth forecast has decreased since the last report. This has been affected by their concern for the limited development in the labor market and the tightening of financial conditions.For the third time in 2013 the Fed has lowered its economic growth predictions for this year. The Federal Reserve now believes that the economy will grow by approximately 2.0%-2.3% in the United States during 2013, below their original forecast that was between 2.3% to 2.8%. For the next four years, inflation is forecast to remain below the Fed’s target for the entire forecast period. More precisely, the Fed estimates inflation to stay below 1.2% in 2013, and increasing to between 1.7% to 2% by 2016.The coming years, the unemployment rate is predicted to decrease. At the end of this year, unemployment is estimated to be 7.2%-7.3% and to fall to 6.5%-6.8% in 2014, 5.8%-6.2% in 2015 and 5.4%-5.9% in 2016. On October 9 the minutes will be available to the public. The next meeting for the Fed will be Oct. 29-30.The dollar rapidly lost ground immediately after the announcement dragging USD/JPY below 98.00 with EUR/USD and GBP/USD moving higher throughout the day. Commodity currencies alongside with the Emerging market currencies moved higher against the dollar. Another big change came from Gold that climbed $65 an ounce to $1368 recovering last week losses.Later in the day, Swiss National Bank and Norges Bank have monetary policy meetings. Both countries are expected to keep their rates unchanged. In the case of Norway, there is some uncertainty about what adjustment Norges Bank might make to its expected rate path. In the UK, retail sales excluding auto are forecast to remain unchanged in August after the unusually strong rise of 1.1% mom in July. Nonetheless this would bring the yoy rate of change up to 3.2% in August from 3.1%, showing continued resilience among consumers. Retail sales have been one of the bright spots in the UK economy and so this indicator is likely to be closely watched. US existing home sales are due for August. Shortly afterwards, Philadelphia Fed Survey and Conference Board leading indicator are coming out for August.The Market
EUR/USD” title=”EURUSD” width=”1729″ height=”741″ />EUR/USD surged after the Fed’s decision to maintain its bond-buying program at $85bn and crushed three resistance levels in a row. During the European morning the pair has settled slightly above the 1.3517 (S1) support level, where a re-boost by the longs should drive the actions towards February’s highs at 1.3706 (R2). The alternative scenario suggests that since the rate moved far away from the uptrend line, a possible correction towards it might occur.
- Support is found at the 1.3517 (S1) level, followed by 1.3448 (S2) and 1.3400 (S3)
- Resistance levels are the level of 1.3580 (R1), followed by 1.3706 (R2) and 1.3846 (R3). The latter two found from the daily chart.
EUR/JPY” title=”EURJPY” width=”1730″ height=”744″ />EUR/JPY moved higher during the overnight session, breaking above the 132.63 level (yesterday’s resistance). Currently the pair lies between the aforementioned level and the resistance of 133.34 (R1). If buying pressure continues pushing the price higher, I expect the bulls to challenge the 133.34 (R1) level, where a clear upward penetration should trigger extensions towards the 133.74 (R2) and 134.23 (R3) levels respectively. Moreover, the rate is trading into the upward sloping channel, above both the 20- and 200-period moving averages, enhancing the probabilities for a further upward movement.
- Support levels are at 132.63 (S1), followed by 131.70 (S2) and 130.96 (S3).
- Resistance is identified at 133.34 (R1), followed by 133.74 (R2) and 134.23 (R3). The latter two are found from the daily chart.
EUR/GBP” title=”EURGBP” width=”1727″ height=”744″ />EUR/GBP fell back and after testing once more the 0.8355 (S1) support level, recovered. Currently the pair is heading towards the 0.8423 (R1) level where a clear upward break might be the first signal of a newborn upside correction. The break would have to be accompanied by the entrance of MACD into its bullish territory, in order to increase the odds for the beginning of the correcting phase.
- Support levels are identified at 0.8355 (S1), 0.8323 (S2) and 0.8260 (S3) respectively. The last two are found from the daily chart.
- Resistance is found at the levels of 0.8423 (R1), 0.8453 (R2) and 0.8503 (R3).
Gold, Silver And The USD
Gold climbed to test the 1368 (R1) level, breaking two resistance levels in a row. Currently the price is moving downwards, failing for now to break above the aforementioned resistance and as a result I believe we should wait for the volatility to fall, in order to make any assumptions for the next trending phase of the yellow metal.
- Support levels are at 1337(S1), followed by 1305 (S2) and 1271 (S3).
- Resistance is identified at the 1368 (R1) level, followed by 1394 (R2) and 1415 (R3).
WTI also gained on the Fed’s decision, turning around and recovering its recent loses. At the time of writing the price is finding resistance at the strong hurdle of 108.85 (R1), where a clear upside break should target the 110.58 (R2) level. However, I believe that WTI is moving in a downtrend since it started forming lower highs and lower lows. Other indicators do not confirm any directional move yet, thus we should wait for the picture to be completed.
- Support levels are at 106.71 (S1), 105.23 (S2) and 103.44 (S3).
- Resistance levels are at 108.85 (R1), followed by 110.58 (R2) and 112.14 (R3).