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Thursday, 6 August 2015

06 August 2015, 08:33

EUR/USD faces strong support around 1.0850, targets 1.1035

06 August 2015, 08:19
  • EUR/USD has made a low of 1.08471 yesterday and recovered from that level. It is currently trading at 1.0910.
  •  It is facing strong support at 1.08450 and any further weakness only below that level.
  • Any break below 1.08450 will drag the pair further down till /1.0800/1.0650.
  • On the higher side minor resistance is around 1.0907 (7 day 4 H EMA) and any break above would extend gains till 1.0950/1.09875/1.100. 
It is good to buy at dips around 1.0885-890 with SL around 1.08450 for the TP of 1.0980/1.1035
06 August 2015, 08:14

Core USD long remains intact

06 August 2015, 08:04
Policy divergence and US growth outperformance are expected to underpin the dollar, even if downside risks in China are realized. EUR/USD forecasts are at 1.00 for year-end 2015.

"Year-end USD/JPY and GBP/USD forecasts remain at 125 and 1.49, respectively. In the dollar bloc, USD/CAD profile had been rose, now seeing it at 1.32 and 1.35for YE '15 and '16. In the Skandies, we raise EUR/NOK and EUR/SEK to 8.70 and 9.30 for YE '15 and 8.30 and 9.10 for YE '16", says RBC capital markets.

In Emerging Markets currencies, key Asia EM FX forecasts largely remain the same, calling for upside in USD-CNY. Around LatAm FX, there is higher forecast profiles for both USD-BRL and USD-MXN.

"The biggest risk to the USD view is weak US data that delays the Fed and better Eurozone data that prevents the ECB from taking the dovish turn", added RBC Capital Markets.

Pressure mounts for MYR depreciation

06 August 2015, 08:00
BNM has been defending USD/MYR at 3.805-3.81 levels for almost 3 weeks now and has spent a lot of precious reserves in doing so. Malaysia reported a considerable decline of USD5bn (USD105.5bn to 100.5bn) in FX reserves for the first two weeks of July. In fact, anecdotal evidence suggests that current reserves might have already dipped below the psychologically big level of USD100bn.

According to Bank of America, this increasing pressure for MYR depreciation is visible on two fronts.

  • First, the bank's FX Exchange Market Pressure index that weights FX reserves, interest rates and FX spot movement into a single index to gauge pressure shows  that depreciation pressure has been sustained.
  • Second, the bank's estimated FX value-adjusted FX reserve position for Malaysia shows that the underlying numbers are showing significant deterioration, even adjusting for the valuation impact that a stronger USD has on the valuation of Malaysia EUR and JPY reserve holdings.

Fed signals low bar for September hike

06 August 2015, 07:54
The dollar extended its rally since the June FOMC meeting as the market priced increased chances of a September hike. The July FOMC statement highlighted the bar for hikes is not high with the Committee only needing to see "some further improvement in labor market improvement" before they will be comfortable raising rates.

This validated and extended market pricing, and while weak Q2 wage data raised questions about a September hike, this is the most likely outcome. With Greek and China risks subsiding for now, this has refocused market attention on policy divergence again, providing a broadly USD-supportive environment.

"The next two employment reports will be key in driving market expectations with a relative dearth of Fed speakers between now and September. A +200k print in the July report supports the September call", says RBC Capital Markets.

10yr UST rates at year end to be unchanged at 2.35%

06 August 2015, 07:48
The forecast for 10y rates at the end of 2015 remains at 2.35%. The forecast is slightly higher than the implied year end forward rate of 2.33%, but lower than the Bloomberg median forecast of 2.52%.

"A gradual Fed and low terminal rate in the presence of subdued inflation as well as low global yields will put a lid on high long end rates can go. The first Fed rate hike in September is expected, followed by hikes at every other meeting", says RBC Capital Markets.

One risk to the forecast is the increasing concerns around outflows from China. Lower Chinese Treasury demand as the PBOC uses some of its USD reserve to support RMB.

However, concerns over the slowdown in China's economy are likely to generate some private safe-haven flows to offset the drop in official demand.

Asian stocks trade mixed before NFP report

06 August 2015, 07:26
Asian markets were trading in mixed directions on Thursday, with Japan outperforming while Chinese and Australian stocks sank ahead of tomorrow's all-important US non-farm payrolls report.

Investors got an insight into Friday's non-farm payrolls report overnight with the release of the Automatic Data Processing (ADP) employment figures, which showed 185,000 job gains for July, missing the expected gain of 216,000.

The Indian market has opened flat with a positive bias. The Sensex gained 23.31 points at 28246.39 and the Nifty rose 5.75 points to 8573.70.

Japan's benchmark Nikkei 225 index rose 0.83% to 20,785.12 points in morning trade, while Tokyo's broader Topix gauge rallied 1.15% to 1,685.54 points.

Hong Kong's benchmark Hang Seng index fell 0.55% to 24,379.11 points at the opening bell, and mainland China's benchmark Shanghai Composite plunged 1.31% to 3,647.75 points at the same time.

Korea's benchmark Kospi index inched up 0.18% to 2,033.37 points this morning in Seoul.

The benchmark Australian S&P/ASX 200 index traded 0.78% lower at 5,629.60 points in Sydney, with Australia's biggest lenders suffering sharp losses early on in the trading day.

New Zealand's benchmark S&P/NZX 50 index rose 0.22% to 5,951.79 points this afternoon in Wellington.

Daily Economic Outlook: 6th August, 2015

06 August 2015, 07:18
Domestic market attention is set to focus on the BoE's policy decision and its revamped policy process, set to coincide with re-emerging fissures in the UK monetary policy debate. The 'Big Bang' at noon of the policy decision, MPC minutes - including the voting record - and the Inflation Report will compress the previous drip-feed of information into the market. The immediate focus will be on the vote, which seems likely to show 3 members voting for a 25bp hike in Bank Rate.

With the potential for as many as 4 members preferring an immediate upward move, the market reaction could run against the more balanced narrative presented in the Inflation Report, released at the same time, and Governor Carney's  press conference at 12:45pm. Notably, the key conditioning assumptions for the BoE's updated projections in the August Report - including a stronger exchange rate, steeper yield curve and lower oil prices - are likely to push down the central inflation forecast, providing an offset to the minority's call for a hike, says Lloyds Bank.

Earlier in the morning, UK industrial production data for June could highlight weakness relative to ONS assumptions made for the preliminary Q2 GDP estimate.

"With oil prices easing off substantially since May, North Sea oil output is likely to fall back after several strong months creating the headwind that underpins our expectation of a 0.1% production decline. German factory orders will also be closely watched for their implications for Eurozone production growth at the end of Q2", states Lloyds Bank.

Alibaba Quantum Computing Laboratory to expand new research into quantum field of computers

6 August 2015, 07:11
Alibaba cloud computing group and Chinese Academy of Sciences signed a memorandum to co-found the Alibaba Quantum Computing Laboratory to take the study and applications of quantum theory to the next level.

This aggrement was signed by the following officials:
  • Chunli Bai, president of CAS;
  • Jianwei Pan, professor and executive vice president of the University of Science and Technology of China and a CAS member;
  • Alibaba Group Chief Technology Officer Jian Wang.
Alibaba Quantum Computing Laboratory will conduct pioneering research in quantum theory with a view to discovering ground-breaking security techniques for e-commerce and data centers.

The macro outlook should put US rate hikes on the horizon

06 August 2015, 07:02
Greek issues have receded from the headlines, and market focus is expected to return to core worries around the broader global macro outlook.

"In particular,the USD is expected to move higher as the July 29th FOMC statement indicated that US monetary policymakers were still seeing progress towards conditions supporting that first Fed rate hike in September", says Bank of America.

There is contrast between a Federal Reserve hiking rates, compared to most central banks around the world cutting rates or executing unconventional easing, to be USD-positive. Of course, such Fed action depends crucially on further improvement in the growth picture, especially the labor market.

The data flow has been somewhat mixed, especially in terms of wage growth. Meanwhile, the ECB continues to fight disinflation concerns with mixed success through their current quantitative easing program.

China's slowdown continues to roil markets, as seen in the move in Chinese equities. Markets are increasingly concerned about stabilization in growth, and weakening activity has particularly hit commodity-focused currencies such as AUD.

"While a more limited negative impact from equities to the economy is still expected, the key factor will be government credibility going forward in terms of restoring confidence", added Bank of America.