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Weekend Edition with John O'Donnell (based on fxstreet article)

John O'Donnell Sits in for Merlin. He discusses the global credit purge cycle within the Online Trading Academy core strategy. Learn how to prosper in the months and years ahead in the global capital markets deflationary trends.


Barclays - 'we recommend remaining short EURUSD' (based on efxnews article)


Barclays made a forecast for this week concerning EUR/USD related to funbdamental factors such as the following:

  • "With the last employment report before the September meeting over, we think that markets will square positions ahead of the FOMC decision on September 17. With only a one-third chance of a lift-off at that meeting, we see limited downside risks to the USD in the short term and keep our bullish medium-term view, particularly vs. the EUR and EM currencies."
  • "Market to continue to contemplate further ECB QE: We continue to expect the ECB to announce before year-end an extension of the current QE programme beyond September 2016; this view was encouraged by sizeable downward revisions to the ECB's inflation forecast for 2016 and 2017 to 1.1% and 1.7%, respectively."
  • "As such, we continue to expect further material EUR depreciation and recommend remaining short EURUSD."

Let's evaluate this forecast concerning the technical point of view:

  • Daily price is located below 200 day SMA (blue line on the chart) for the primary bearish and above 100 day SMA for the secondary ranging market condition.
  • The price is crossing 61.8% Fibo support level at 1.1154 from above to below with Fibo support level at 1.0807 as the next bearish target.
  • Descending triangle pattern was formed by the price to be crossed for the bearish breakdown to be started.
Thus, Barclaysmay be correct one concerning the keeping the bearish for EUR/USD but in secondary ranging market condition.

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Press review

Sergey Golubev, 2014.01.06 18:38

What is the Pip Cost for Gold and Silver?


  1. Gold: Symbol XAU/USD
    The pip cost for 1 ounce of Gold (minimum trade size) is $0.01 per pip.
  2. Silver: Symbol XAG/USD
    The pip cost for 50 ounces of Silver (minimum trade size) is $0.50 per pip

BTMU Forecasts for EUR/USD: 1.060 in December 2015 (based on efxnews article)

This pair is on bearish market condition for ranging between Fibo resistance level at 1.1713 and Fibo support level at 1.0850. Symmetric triangle pattern was formed by the price to be broken with 1.0807 resistance level for the bearish trend to be continuing, and the next bearish targets in this case are 1.0520 and 1.0461.

According to the forecast made by Bank of Tokyo-Mitsubishi UFJ, this triangle pattern will be broken from above to below together with 1.0807 target by the end of this year, and we may see good bearish breakdown possibilities in the beginning of 2016: the price will break 1.0520/1.0461 support levels by March 2016, and EUR/USD will be at 1.000 in Jun'16.

Pairs
 Q3
Sep'15
 Q4
Dec'15
Q1
Mar'16
 Q2
Jun'16
EUR/USD
1.120
1.060
1.020
1.000


Many int'l institutions made a prediction for the EUR/USD to be 1.000 or less than that at year-end but this is the first forecast which was clarified the values of this pair in detailed timing way: we will see the EUR/USD to be 1.000 in June 2016 only.

Goldman Sachs about Next Week's FOMC: 'the first hike is not likely to come until December' (based on efxnews article)

Goldman Sachs made some forecast concerning USD related to the FOMC meeting which will be held next week on Thursday:

  1. "With an all-important FOMC meeting coming up next week, focus on the USD factor may increase once again. That has not typically been helpful for EM FX in recent years. But given our US Economics team’s view that the first hike is not likely to come until December and given the very sharp sell-off in EM FX in recent days, some stabilisation is certainly possible in the event of a dovish outcome."
  2. "This would argue for some near-term caution in chasing the rapid moves of recent days. However, such a reprieve is likely to prove temporary, in our view, because the underlying external and internal adjustments are not complete, and we continue to see room for EM FX weakness versus the USD to extend in the medium term."

Just to remind about next week's FOMC metting:

2015-09-17 19:00 GMT (or 21:00 MQ MT5 time) | [USD - FOMC Statement, Federal Funds Rate]

  • past data is 0.25%
  • forecast data is 0.50% or 0.25%
  • actual data is n/a according to the latest press release

if actual > forecast (or previous data) = good for currency (for USD in our case)
if hawkish > expected = (for USD in our case)

[USD - FOMC Statement] = It's the primary tool the FOMC uses to communicate with investors about monetary policy. It contains the outcome of their vote on interest rates and other policy measures, along with commentary about the economic conditions that influenced their votes. Most importantly, it discusses the economic outlook and offers clues on the outcome of future votes.

[USD - Federal Funds Rate] = Interest rate at which depository institutions lend balances held at the Federal Reserve to other depository institutions overnight. Short term interest rates are the paramount factor in currency valuation - traders look at most other indicators merely to predict how rates will change in the future.

Credit Agricole for EUR/USD: 1.12 by the end of Q3, 1.06 by the end of the year, and 1.04 by the end of Q1 of 2016 (based on efxnews article)

Credit Agricole made an other forecast for EUR/USD: 1.12 by the end of Q3, 1.06 by the end of the year, and 1.04 by the end of Q1 of 2016. It means that old forecast (made few day ago) was updated for 1.12 target for this pair by the end of September. This correction was made because of fundamental factors changed: Credit Agricole is expecting dovish ECB (ECB Meetings) and hawkish Fed (FOMC).


Just to remind the general rules for fundamental news events concerning the speeches:

  • EUR: if dovish > expected = good for currency (for USD in our case).
  • USD: if hawkish > expected = good for currency (for USD in our case).

That means that Credit Agricole is expecting more bearish for EUR/USD in the medium term forecast:

  • "We revise our near-term forecasts for EUR to the upside to account for the latest China-induced risk selloff. We expect the positive correlation between risk aversion and EUR to keep the single currency supported in the near term."
  • "The resilience should be evident against USD given that the Crédit Agricole CIB economists have pushed their Fed lift-off call from September to October 2015. Going into year-end and into 2016 we expect the policy divergence trade to reinstate itself, however."
  • "Strong EUR coupled with slowing global growth and lower commodity prices should increase the risk that the ECB QE will continue beyond September 2016, making the EUR an even more attractive funding currency."
  • "All that should bring EUR NEER back down to its recent lows over the forecast horizon. We lower our medium-term outlook for EUR/USD in view of the persistent policy divergence between the dovish ECB and hawkish Fed."
  • "We now target EUR/USD at 1.12 by the end of Q3, 1.06 by the end of the year, and 1.04 by the end of Q1 of 2016."

USD trading strategy going into next week's FOMC meeting - Morgan Stanley (based on efxnews article)

Morgan Stanley estimated thew probability for Fed hike in September vs December meetings, and it was stated that a 30% chance only of a hike in September, so there is more chance to expect this events in December this year. And in this case, it may be more opportunity for EUR and JPY with related to USD: those pairs may be in bullish condition during the September 17th meeting for example.

Thus, there are 3 basic scenarios concerning Fed hike:

Base-Case: December. "The Fed has entered its pre-meeting silent period, which means there are no speakers on the agenda to move market expectations of the first hike before the September 17th meeting. Comments from the Fed thus far suggest the central bank wants to make the first hike as well flagged as possible and avoid surprising the market. With markets pricing in less than a 30% chance of a hike in September, it therefore is unlikely that the Fed will hike now. Indeed, our US economists have maintained their view for a December hike."

Get It Done: "A hike next Thursday would lead to accelerated EM weakness, in our view. Current account surplus and net foreign asset-supported FX such as EUR and JPY may rally should the Fed hike; these currencies have developed an increasingly tight inverse relationship with the performance of risky assets."

Or Wait: "The Fed delaying action would be in line with current market pricing. In this scenario, USD would likely soften somewhat and the Fed would remain data-dependent in the statement and in the Chair’s press conference. Nonetheless, USD dips still represent buying opportunities as the reason for USD strength is mainly USD-supportive repatriation flows."

Any USD downside should stay limited from the current levels - Credit Agricole (based on efxnews article)

  • "Risk sentiment remains unstable ahead of this weekend’s data out of China and next week’s FOMC monetary policy announcement."
  • "It seems to become a stronger notion that the Fed will consider higher rates next week, irrespective of more muted price developments and intact uncertainty as related to Asia. This is also reflected in Bloomberg consensus expectations, according to which a lift-off is favoured next week. If so, the greenback should remain supported versus for instance the JPY. This is especially true as rate markets price in a probability for the Fed to tighten of only 30%."
  • "However, even if the Fed will remain on hold, as forecasted by our economists, central bank Chairwoman Yellen should consider a more hawkish rhetoric during the press conference in order to prepare the market for a lift off in October. This in turn suggests that any USD downside should stay limited from the current levels."
  • "All of the above suggests too that EUR/USD upside should prove limited, even if the pair continues to benefit from weak sentiment."

EUR/USD Forecast Sep. 14-18 (based on forexcrunch article)

EUR/USD managed to enjoy a nice recovery, ending the week on a positive note. Is it set for more gains? The big event of the week in Europe are the ZEW survey and inflation data. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.

Talk from the ECB on QE wasn’t news for the euro and didn’t really have a negative effect. Data-wise, we had little in the way of surprises, but the strong German trade balance reminded us that the euro is bid. In the US, we had some good JOLTs news but disappointing consumer confidence ahead of the big event: the all important Fed meeting coming now. Will the mounting tension result in an explosion of the pair?

  1. Industrial Production: Monday, 9:00. Industrial output in the euro-area disappointed with a slide of 0.4% in June. With German production falling short of predictions for July, a bounce of only +0.3% is on the cards.
  2. French CPI: Tuesday, 6:45. Prices in the continent’s second largest economy dropped by 0.4% in July. The publication for August feeds into the final euro-zone data published later in the week. A rise of 0.4% m/m is expected for August.
  3. German ZEW Economic Sentiment: Tuesday, 9:00. This early survey from ZEW has been on the fall in the past 5 months, yet the score remained positive, reflecting optimism. For the month of September, another fall from the 25 points listed in August is likely, given the global gloom: a score of 18.3 is on the cards. The all European number will likely fall as well from 47.6 seen in August to 42.1 points.
  4. Trade Balance: Tuesday, 9:00. Germany’s huge trade surplus shapes the figure for the full euro-zone. A positive figure of 21.9 billion was seen in June and a similar result is on the cards for July: 21.4 billion.
  5. Employment Change: Tuesday, 9:00. This quarterly official figure lags the unemployment rate, but is still of note. A rise of 0.1% was seen in Q1 and a repeat is predicted for Q2.
  6. Final inflation figures: Wednesday, 9:00. The preliminary inflation data for August showed a poor 0.2% y/y gain in prices, far below the ECB’s “2% or a bit below” target. Also when excluding volatile items, Europe has seen a meager 1% rise in prices. The data will likely be confirmed.
  7. ECB Economic Bulletin: Thursday, 8:00. The European Central Bank has already lowered its forecasts and President Mario Draghi dragged down the euro in a masterful act. Nevertheless, this deeper insight provides a broader view into the ECB’s state of mind.
  8. Current Account:  Friday, 8:00. Similar to the trade balance, also the wider current account measure shows a huge surplus. A positive 25.4 billion in June beat expectations, and narrower surplus of 21.3 billion is expected now.

September FOMC Forecast by Nomura (based on efxnews article)

Nomura is expecting the first Fed hike in December and explaining about it: the FOMC will not raise rates this week during September FOMC:

  1. "Even without a decision to raise short-term interest rates, markets will have a lot to digest. We will get a new round of forecasts from FOMC participants. The economic forecasts for this year are likely to change in response to data that have already been released. We are not expecting big changes to the economic forecasts for 2016 and beyond. More importantly, we will also get another set of interest rate forecasts. We are expecting significant declines in the FOMC’s expected path of interest rates."
  2. "At a minimum, we expect the Committee’s forecast for 2015 to coalesce on one hike this year. We are expecting the FOMC to raise rates for the first time in December. We do not expect the Committee to endorse a more rapid pace of interest rate adjustment after liftoff. Consequently, the delay in liftoff should imply a lower path of rates over the whole forecast horizon. We also think that the downward adjustment of the rate path is consistent with the recent tightening of financial conditions. We think that those changes in financial conditions will primarily be reflected in the FOMC participants’ paths of interest rates rather than their paths for growth and inflation."
  3. "Finally, we will hear from Chair Yellen in her post-FOMC press conference. We think Yellen will stress that the FOMC is getting closer to raising rates and that the Committee expects to raise rates this year. We expect her to acknowledge that downside risks have increased and those had played a role in the Committee’s decision. We expect her to reiterate that the Committee’s future decisions will continue to be sensitive to how the outlook for the economy and inflation evolves and that the pace of interest rate adjustment, once it begins, is likely to be slow and data dependent."

As we know - some int'l financial institutions are still expecting for Fed hike to rise this week so that is why the opinion of Nomura Holdings is important for us here.

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