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EUR/USD: Euro Trades in Narrow Range, Steady Above $1.27

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Monday, 20 October 2014 15:51

The common European currency traded in a tight range, steady above the $1.27 threshold in morning European trading on Monday, while stagnation and persistently low inflation in the euro area remain the main threats that may contribute contribute to the currency's decline in the upcoming weeks.

The 18-nation bloc currency rose 0.02% and traded at $1.2760 against the US dollar, hovering around its intraday high.

Over the last week the euro area currency booked a weekly gain against the dollar as a hugely oversold US currency took a breather after a series of strong gains observed in the previous weeks.

Given the sluggish economic performance in the euro area, BNP Paribas economists say that European Central Bank (ECB) officials should change their tone in the upcoming days.

"We believe the ECB will need to shift its tone decisively at, if not before, the next policy meeting on 6 November. This is likely to both help a recovery in risk sentiment and contribute to restoring the EUR’s status of a funding currency", as stated in a recent note BNP Paribas sent to investors.

This week the macro data releases are expected to bring some more volatility to the currency pair.

On Wednesday, the US Consumer Price Index is seen improving from its August level of 0.0% to 0.2% in September, which will likely influence the pair.

Thursday will see a German Purchasing Managers' Index report which is likely to show the continuation of the European slowdown, with the index expected to slide from its September level of 49.9 to 49.5 in October.

Germany and France, Europe's two largest economies, have recently squabbled over the latter’s insistence to be accorded an exception when it comes to meeting its deficit targets.

"The euro looks to be building up for a potential rebound with trend line support from the recent lows at 1.2675. We need to clear 1.2900 and last week’s high to target a deeper move towards 1.3000. A move back below 1.2670 could well herald a retest of the 1.2570 level. Below 1.2570 argues for a retest of the 1.2500 level and then 1.2400", Michael Hewson, chief market analyst at CMC Markets UK, said in his most recent note to investors.

 
 

Iron Ore to Collapse on Oversupply

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Monday, 20 October 2014 15:14

Iron ore prices are expected to continue a downward trend as global demand remains muted, while supply is expected to rise. Traders will keep an eye on upcoming Chinese gross domestic product (GDP) figures which are expected to ease, with slower economic growth potentially negatively impacting iron ore demand.

"About 300 million metric tonnes of new and expanded supply will come on stream over the next few years. Global steel-production growth in 2014 remains muted with China, the key driver of consumption, continuing to slow," analysts from Moody’s said in a report on Monday.

They expect ore prices to remain vulnerable to the downside and volatility may continue. The so-called price sensitivity for iron ore was revised to a range of $75 to $85 a tonne through 2016.

The price was at $80.82 a tonne last week, according to data from Metal Bulletin.

Last week, two of the largest iron ore suppliers -Australia and Brazil - pledged to increase output andforecast boosting their joint share to 79% in 2015 from 73% last year.

Iron ore prices have fallen 38% this year on rising low-cost production. The global surplus will more than triple to 163 million tonnes next year from 52 million this year, according to Goldman Sachs Group. Despite the price war, suppliers are not expected to cut production amid the battle over market share.

However, analysts expect higher demand for the commodity from India and China. Stockpiles in China are contracting, which signals demand is outstripping supply and high-cost production is leaving the market.

 
 

GBP/USD: Pound Rebounds, Hovers Around $1.61

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Monday, 20 October 2014 15:02

pounsterlingThe UK pound was lifted in early European trading on Monday and broke through the $1.61 threshold, as investors begin to shift their attention toward a series of reports set to be released later this week that should provide more insight into the state of the UK economy.

Sterling rose 0.14% and traded at $1.6109 against the US dollar, remaining close to the intraday high hit earlier today.

The recent volatility of the currency pair is, to a high degree, determined by speculation about the timing of the Bank of England's (BoE) first monetary policy tightening. Earlier expectations pointed to a rate hike coming in the first three months of 2015, but now seem to be giving way to a more pessimistic projection.

Last week, BoE official Andrew Haldane told reporters that he is more pessimistic about the state of the economy and we can expect the rate-hike to instead come in "the middle of next year."

On Wednesday, the BoE's Monetary Policy Committee (MPC) minutes will be released with traders awaiting more clues concerning the central bank's views on the interest rate and the voting composition.

"One key question will be whether the two dissenters on the MPC, McCafferty and Weale, reverse their votes for a rate rise in light of some of the more recent data, when the latest minutes of the most recent Bank of England meeting are released", said Michael Hewson, chief market analyst at CMC Markets UK.

As for the macro agenda later this week, retail sales are due on Thursday with a forecast of a 0.2% decline in September month-on-month, while retails ex autos are expected to show the same pace of growth, inching up 0.2%.

On Friday, the first reading of UK gross domestic product will likely reveal the economy expanded 0.7% in the second quarter, after 0.9% growth in the previous quarter.

"The pound appears to be building up for a potential rebound in a descending wedge, which a break of 1.6130 could well prompt a sharp move towards 1.6220/30. We have also trend line resistance at 1.6240 from the highs in June and this needs to break to mitigate the downward momentum and prevent a move towards 1.5720", the note from Michael Hewson continues.

 
   

NZD/USD: Kiwi Rebounds on Chinese Stimulus News

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Monday, 20 October 2014 14:12

The New Zealand dollar was boosted on Monday as news broke about the Chinese central bank's plans to step up its stimulus to support economic growth.

The so-called kiwi rose 0.23% and traded at $0.7929 against the US dollar, retreating somewhat from the intraday high hit earlier in the session.

Currencies of commodity-exporting nations, including New Zealand and Australia, rose versus the dollar amid news that the performance of the world’s second-biggest economy will be supported by the 200 billion yuan ($32.7 billion) the People’s Bank of China (PBOC) plans to inject into some national and regional lenders.

“The economy is decelerating, and I believe it is high time to do more easing to stop the downward trend,” said Shen Jian-guang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd.

As China is the biggest trade partner of both Australia and New Zealand, it's the Chinese data that is expected to bring more volatility into the currency pair in the upcoming days.

Investors will closely watch the upcoming Chinese gross domestic product (GDP) figures that are expected to ease, with slower economic growth possibly having a negative impact on the commodity currencies.

"In the week ahead commodity currencies will be looking for some further improvement in the risk backdrop. The latter will be sensitive to data from China where Q3 GDP and October PMI on Tuesday are probably the main focus. The slowing in GDP is largely anticipated so the lack of a negative surprise may be sufficient to avoid a risk sell-off", analysts from BNP Paribas said in their recent note to investors.

 
 

DAX Starts Lower, Further Data to Confirm German Slowdown

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Monday, 20 October 2014 14:07

Germany's DAX 30 index opened Monday's session on a lower note, with no major data in the economic calendar today, but with reports later in the week set to the confirm the slowdown of the euro zone's biggest economy.

The German benchmark index dropped 0.42% to start the trading day at 8,813.14.

On Friday, the DAX booked a 3.12% jump at the market close, while it managed to end the week with a 0.70% gain after posting several sessions of huge losses due to worries over the global economic slowdown, mainly in Europe.

"Concerns about a recession in Europe haven't gone away and neither have concerns about a slowdown in China, both of which are likely to get further confirmation later this week as we get a raft of economic releases, that are likely to reinforce the reasons behind last week's early declines," Michael Hewson from CMC Markets said.

Later in the week, Markit Economics will report its flash estimates on Germany's manufacturing and services sectors, with both readings expected to show worsening in October.

Activity in the country's factories is forecast to remain in contraction territory with a gauge of 49.5 points, a drop from 49.9 in September.

Moreover, its services sector is expected to expand at a slower pace, with analysts predicting 55 points after 55.7 a month ago.

 
   

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