October 2014 ~ Forex Watcher

Friday, October 31, 2014

Canadian Economy Shrinks After Oil Price Drop

Canada’s gross domestic product shrank in August, an unexpected decline led by oil and gas extractors.

Output shrank 0.1 percent to an annualized C$1.63 trillion ($1.45 trillion), Statistics Canada said today in Ottawa, while the median forecast in a Bloomberg economist survey with 20 responses was for output to be little changed from July.

Oil and gas extraction declined by 2.5 percent to C$96.9 billion, the second straight decrease, leading the broader drop across goods-producing industries. Output among service producers rose 0.2 percent.

The economy remains hobbled by weak exports and business investment, which Bank of Canada Governor Stephen Poloz says are critical to building the recovery. The central bank extended the longest interest-rate pause since the 1950s this month and said it will take two years to restore full output in the world’s 11th-largest economy.

via Bloomberg

U.S. Economy Expands at 3.5%

The U.S. economy expanded more than forecast in the third quarter, validating the optimism that prompted Federal Reserve policy makers to stop pumping money into financial markets.

Gross domestic product grew at a 3.5 percent annualized rate in the three months ended September after a 4.6 percent gain in the second quarter, Commerce Department figures showed today in Washington. It marked the strongest back-to-back readings since the last six months of 2003.

Government outlays and a shrinking trade deficit boosted growth last quarter, buying time for consumer spending in the world’s largest economy to strengthen as fuel prices drop and hiring picks up. Fed officials yesterday cited the improvement in the job market in deciding to end their bond-buying program and stay on course toward interest rate increases next year.

Bloomberg

Looking for Clues to BOJ’s Next Move

The Bank of Japan (BoJ) is set deliver its closely-watched biannual economic Outlook Report at Friday’s monetary policy meeting, which may offer clues about the central bank’s next move.

The Outlook for Economic Activity and Prices report, released in April and October, includes projections for Japan’s real economic growth and inflation rates through fiscal 2016.

With inflation far off from the BoJ’s goal of 2 percent by April 2015, the market will focus on the outlook for consumer prices and whether the central bank will revise its target.

CNBC

Japan Likely to Miss its Inflation Target

Japanese Prime Minister Shinzo Abe won his nation’s elections in late 2012 with bold promises. One of those promises was that the Japanese economy would roar back to life, ending two decades of deflation. He promised a 2% inflation rate in a two-year time span. As that deadline lurches closer, it appears the prime minister’s promise will ring hollow.

Initially, the Bank of Japan (BoJ) did not share Abe’s conviction that it could be done, and it spent most of the year battling government criticism that it was not doing enough to support the economy. After former Governor Masaaki Shirakawa’s term ended in March of 2013, Abe appointed Haruhiko Kuroda to the prestigious job after Kuroda stated Abe’s 2% target was achievable. Now with a hand-picked monetary policy partner, Abe unleashed what came to be known as ‘Abenomics’.

Has Abenomics Failed?

Abenomics is based on three arrows consisting of fiscal stimulus, monetary easing, and structural reforms.

The BoJ was the main driver of the first arrow of Abenomics and was the most proactive central bank in 2013. That year, both the Federal Reserve and the European Central Bank (ECB) backtracked on earlier statements and were subsequently heavily criticized for it. The BoJ “walked the walk and talked the talk” with the announcement it would double the monetary base at the end of year, and the JPY fell accordingly as Japan was on track to import inflation.

Abenomics might have worked if the Japanese economy would not have been hit by four factors: the deterioration of trade with China, energy and food price instability, JPY as a safe haven, and the negative effect on growth from the second arrow and a sales tax hike last April.

Bank officials were so sure they could hit the target that they disregarded their own forecasts pointing to 2016 as a more likely timeframe for when inflation would reach 2%. Earlier this week the central bank’s deputy governor told parliament that its inflation target was not set in stone like a train timetable. Quite a remarkable admission considering the pledge the bank made 18 months earlier.

The Fed: In the Recovery We Trust

It’s unlikely Japan’s central bank will alter its current monetary policy with additional stimulus. Yet the pressure continues to increase for it to get back to providing proactive guidance on the economy. The rhetoric the BoJ used so often has lost its effect, as it has with the ECB and the Fed, and only action will sway the markets. However, the JPY will continue to weaken as long as the Bank of England and the Fed continue on the path to rate hikes by next year. Japan and Europe will still struggle with deflationary battles which will force them to stimulate their economies via bond-buying. This will result in growing interest rate divergence between major economies favoring USD strength.

Stateside, the Federal Open Market Committee (FOMC) meeting concluded last Wednesday. There was little surprise in its post-meeting statement as the Fed announced it will end its quantitative easing (QE) program as planned at the end of October. The interest rate was held at the 0.0% to 0.25% target range. The tone of the statement was a bit more hawkish than expected as there was no mention of European and global growth risks, but the focus was on positive U.S. employment and reduced inflation. The EUR/USD continued to depreciate below the 1.27 price line, fueled by the expectation that a rate hike is forthcoming in 2015, although the exact timing is hard to predict.

The Fed continued to use the “considerable time” language which does not give a hint of when exactly they will consider a rate hike. But even with that line still in the statement, the Fed is the most likely of the major economies’ central banks to hike rates first next year.

Inflation and employment — the two of the main economic gauges the Fed looks at — have an optimistic outlook. Inflation continues to be lower than targeted but a slight pick-up is expected. In general, the members of the Fed’s policy board seemed pleased with the recovery of the U.S. jobs market.

A Dove among the Fed Hawks

There was one dissenter in the FOMC vote. Narayana Kocherlakota voted against the end of QE as he believed inflation would be weaker going forward. Kocherlakota has consistently been a vocal critic of raising rates too early. The president of the Federal Reserve Bank of Minneapolis believes that is the expectation of the market, and he is advising the Fed now to change its benchmark rate until the economy can sustain growth after such a major shift.

Stock markets were expecting the Fed would have been moved by the latest volatility shocks and signs of weakness in the U.S. economy. The resulting hawkish outcome sent stocks downward. Meanwhile, Fed Chair Janet Yellen did not make any comments on the subject during her speech at the Board of Governors of the Federal Reserve System National Summit recently. Her topic focused on the lack of diversity in economics.

U.S. gross domestic product (GDP) beat expectations in the third quarter of the year. The preliminary figures came in at 3.6% growth compared to the forecast of 3.1%. Bad weather last winter drove the first-quarter GDP to a shocking low –2.6% only to come back in the second quarter with a massive 4.6%. The 3.6% marks a healthy pace in U.S. economic growth especially considering the risks posed by Europe and Japan. The GDP figures are in line with the comments from the FOMC statement, further validating the decision to end bond-buying in October.

The EUR/USD pair will continue to be under pressure as better economic and policy member rhetoric support the USD. On the other hand, flash consumer-price index data will be released in Europe, and that could put the ECB under added pressure. More stimuli is needed, the ECB admits, but eurozone states have to agree on a concentrated effort and that’s no easy feat. Germany, namely, does not agree sovereign bond-buying is the best approach for the eurozone, although it would be the most effective.

GBP/USD – Pound Stabilizes After Sharp Drop

GBP/USD is showing limited movement on Thursday, as the pair trades just above the 1.60 level in North American trade. On the release front, the sole British event was Nationwide HPI. The housing indicator posted a gain of 0.5% and met expectations. In the US, Advance GDP posted a strong gain of 3.5% in Q3, while Unemployment Claims showed little change, coming in at 287 thousand. As well, Fed Chair Janet Yellen spoke at an event in Washington.

It was another solid performance from US GDP, which posted a strong gain of 3.5% in Q3, ahead of the estimate of 3.1%. Although this was short of the Q2 reading of 4.0%, the two readings mark the strongest six-month gain we’ve seen in ten years. Unemployment Claims increased slightly to 287 thousand, slightly higher than the previous reading of 284 thousand. However, the four-week average remains at multi-year lows, pointing to an improving labor market.

The US dollar posted strong gains on Wednesday, boosted by a hawkish Federal Reserve policy statement. The Fed said that the labor market is strengthening and inflation remains on target, although it did note that the labor market participation rate remains low. As expected the Fed completed the taper of its QE3 program. The asset-purchase program was initially started in 2008, at the height of the economic crisis, in order to boost a weak US economy. The termination of the QE is a symbolic step which is a vote of confidence from the powerful Fed that the US economy is on the right track.

Despite a strong US recovery, durable goods data continues to point to weakness in the manufacturing sector. In September, Core Durable Goods Orders dropped 0.2%, its second decline in three months. This was well short of the estimate of 0.5%. Durable Goods Orders followed suit with a decline of -1.3%. This was the indicator’s second straight decline and missed the estimate of 0.4%. There was much better news from CB Consumer Confidence, as the indicator climbed to 94.5 points, up sharply from 86.0 points. The easily beat the estimate of 87.4 and marked a 7-year high.

GBP/USD for Thursday, October 30, 2014

GBP/USD October 30 at 16:05 GMT

GBP/USD 1.6024 H: 1.6027 L: 1.5952

GBP/USD Technical

1.5717

1.5864

1.6000

1.6141

1.6263

1.6382

GBP/USD showed little movement in the Asian session. The posted gains in the European session, breaking above resistance at the round number of 1.6000. The pair is steady in North American trading.

1.6000 has reverted to a support role as the pound has posted gains. Will this key level see further action during the day? 15864 is stronger.

1.6141 is a strong resistance line.

Current range: 1.6000 to 1.6141

Further levels in both directions:

Below: 1.6000, 1.5864, 1.5717 and 1.5644

Above: 1.6141, 1.6263, 1.6382, 1.6524 and 1.6643

OANDA’s Open Positions Ratio

GBP/USD ratio is pointing to gains in long positions on Thursday. This is consistent with GBP/USD, which has posted slight gains. The ratio has a majority of long positions, indicative of trader bias towards the pound posting gains.

GBP/USD Fundamentals

7:00 British Nationwide HPI. Estimate 0.4%. Actual 0.5%.

7:45 BoE Deputy Governor Jon Cunliffe Speaks.

12:30 US Advance GDP. Estimate 3.1%. Actual 3.5%.

12:30 US Unemployment Claims. Estimate 284K. Actual 287K.

14:30 US Advance GDP Price Index. Estimate 2.0%. Actual 1.3%.

13:00 US Federal Reserve Chair Janet Yellen Speaks.

14:30 US Natural Gas Storage. Estimate 83B. Actual 87B.

* Key releases are in highlighted bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

AUD/USD – Aussie Shows Gains Despite Strong US GDP

AUD/USD has posted gains on Thursday, as the pair trades in the low-0.88 range. On the release front, Australian Import Prices posted a second straight decline, coming in at -0.8%. In the US, GDP posted a strong gain of 3.5% in Q3, while Unemployment Claims showed little change, coming in at 287 thousand.

In the US, durable goods looked dismal in September. Core Durable Goods Orders dropped 0.2%, its second decline in three months. This was well short of the estimate of 0.5%. Durable Goods Orders followed suit with a decline of -1.3%. This was the indicator’s second straight decline and missed the estimate of 0.4%. There was much better news from CB Consumer Confidence, as the indicator climbed to 94.5 points, up sharply from 86.0 points. The easily beat the estimate of 87.4 and marked a 7-year high.

AUD/USD for Thursday, October 30, 2014

AUD/USD October 30 at 14:40 GMT

AUD/USD 0.8821 H: 0.8824 L: 0.8756

AUD/USD Technical

0.8668

0.8763

0.8820

0.8953

0.9020

0.9119

AUD/USD stabilized in the Asian session, following sharp losses on Wednesday. The Aussie has posted gains in the European and North American sessions.

0.8820 is under strong pressure and we could see this line fall during the North American session. 0.8763 is stronger.

0.8953 has strengthened in resistance as the pair trades at lower levels.

Current range: 0.8820 to 0.8953.

Further levels in both directions:

Below: 0.8220, 0.8763, 0.8668, 0.8550 and 0.8456

Above: 0.8953, 0.9020, 0.9119 and 0.9217

OANDA’s Open Positions Ratio

AUD/USD ratio is pointing to gains in long positions on Thursday. This is consistent with what we’re seeing from the pair, as the Australian dollar has posted gains. The ratio has a majority of long positions, indicative of trader bias towards AUD/USD continuing to move to higher ground.

AUD/USD Fundamentals

00:30 Australian Import Prices. Estimate +0.3%. Actual -0.8%.

12:30 US Advance GDP. Estimate 3.1%. Actual 3.5%.

12:30 US Unemployment Claims. Estimate 284K. Actual 287K.

14:30 US Advance GDP Price Index. Estimate 2.0%.

13:00 US Federal Reserve Chair Janet Yellen Speaks.

14:30 US Natural Gas Storage. Estimate 83B.

* Key releases are highlighted in bold

*All release times are GMT

ECB To Start ABS Purchases in November

With markets heading lower after the US Federal Reserve was deemed to be more hawkish than expected, along with worries about the European banking stress tests, the biggest faller has come as a slight surprise.

BT is down 10.8p or nearly 3% at 364.7p depite the telecoms group reporting second quarter earnings which were slightly better than City expectations. It benefited from superfast broadband and its move into sport, in particular Premier League football, with audiences up around 45% on average. So pretax profit rose 13% on a 2% fall in revenues.

But there were signs of increased competition in broadband from the likes of BSkyB and other operators, with BT taking 48% of net new customers in the UK, down from previous levels. According to figures from Oriel, this compares to 64%, 79%, 60% and 93% in the first quarter 2014/15 back to the second quarter of 2013/14.

via The Guardian

West TX Oil Remains Below $83 on Strong U.S. Dollar

U.S. crude futures edged below $82 a barrel on Thursday in early Asian trade, pressured by a strong dollar and a supply glut, following overnight gains on the back of a less-than-expected rise in U.S. oil stockpiles.

NYMEX crude for December delivery was down 32 cents at $81.88 a barrel by 0004 GMT, after settling up 78 cents at $82.20 on Wednesday.

The market has regained some ground after hitting a more than two-year low of $79.44 on Monday following Goldman Sachs’ cut in its price forecast due to higher projected supplies.

CNBC

US Consumer Spending Falls As Economy Might Be Losing Speed

US consumer spending fell in September for the first time in eight months, suggesting the economy lost some momentum heading into the fourth quarter.

The Commerce Department said on Friday consumer spending declined 0.2% last month as demand for goods tumbled and services barely rose. Spending had increased by an unrevised 0.5% in August.

Economists polled by Reuters had expected consumer spending, which accounts for more than two-thirds of US economic activity, to increase 0.1% in September.

When adjusted for inflation, consumer spending fell 0.2%. That was the first drop since April and followed a 0.5% rise in August.

The data was included in Thursday’s gross domestic product report, which showed the economy expanded at a 3.5% annual rate in the third quarter after a 4.6% pace in the second quarter.

The softer consumer spending at the end of the third quarter could add to expectations of slower growth in the final three months of the year. A report on Tuesday showed unexpected weakness in business spending plans for equipment in September.

But with gasoline prices at a near four-year low and faster job growth expected to boost wages, the slowdown in consumer spending could be temporary.

Income rose 0.2% in September after increasing 0.3% in the prior month. With income growth outpacing consumption, savings jumped to $732.2bn, the highest level since December 2012, from $702.0bn in August.

via The Guardian

Inflation Rises Slightly in EU With Unemployment Rate Unchanged

Inflation in the eurozone rose slightly in October, giving some hope that the spectre of deflation can be staved off.

The flash inflation figure of 0.4% for October was up from 0.3% in September, Eurostat said.

The services sector was the biggest influence on the rise, showing an increase of 1.2% compared with a 1.1% rise in September.

The eurozone’s unemployment rate remained unchanged at 11.5% in September compared with August.

via BBC

Russian Central Bank Raises Rate to 9.5%

Inflation in the eurozone rose slightly in October, giving some hope that the spectre of deflation can be staved off.

The flash inflation figure of 0.4% for October was up from 0.3% in September, Eurostat said.

The services sector was the biggest influence on the rise, showing an increase of 1.2% compared with a 1.1% rise in September.

The eurozone’s unemployment rate remained unchanged at 11.5% in September compared with August.

via BBC

USD/JPY – Yen Plunges as BoJ Anounces Stimulus Surprise

USD/JPY has climbed sharply on Friday, as the pair trades in the mid-111 range in the European session. The pair jumped after a surprise announcement by the BoJ to increase stimulus by raising its monetary base target to JPY 80 trillion annually. In the US, today’s highlight is Revised UoM Consumer Sentiment. The markets are expecting the indicator’s upward trend to continue, with the estimate standing at 86.4 points.

The dollar has gained about 250 points against the yen on Friday, as the Japanese currency finds itself close to 7-year lows. The yen took a tumble after the BoJ surprised the markets with a move to increase monetary stimulus. The monetary base target has been increased from JPY 60-70 trillion per year to JPY 80 trillion. The BoJ said that the move was needed to increase inflation, which remains short of the central bank’s target of 2%.

Japanese data continues to impress this week. Preliminary Industrial Production sparkled in September, with a gain of 2.7%, compared to a reading of -1.5% a month earlier. The estimate stood at 2.3%. Earlier in the week, Japanese Retail Sales was unexpectedly strong in September, climbing 2.3%, its strongest gain since March and well above the estimate of 0.9%. There has been concern about consumer spending in Japan after the sales tax was raised in April from 5% to 8%. The government plans to increase the tax to 10%, but is wary about hurting the economy, which has been marked by modest growth. Meanwhile, Household Spending, an important consumer spending indicator, fell 5.6%, well below expectations.

USD/JPY for Friday, October 31, 2014

USD/JPY October 31 at 11:00 GMT

USD/JPY 111.61 H: 111.89 L: 109.20

USD/JPY Technical

108.58

109.82

110.68

112.94

113.68

114.65

USD/JPY posted sharp gains late in the Asian session. The pair is steady in the European session.

112.94 is a strong resistance line.

110.68 is providing strong support.

Current range: 108.58 to 109.82

Further levels in both directions:

Below: 110.68, 109.82, 108.58, 107.68 and 106.85

Above: 112.94, 113.68, 114.65 and 115.75

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to gains in short positions on Friday, as strong gains by the dollar have led to many long positions being covered. The ratio currently has a majority of short positions, indicative of trader bias towards the yen reversing directions and moving higher.

USD/JPY Fundamentals

4:44 BoJ Monetary Policy Statement.

5:00 Japanese Housing Starts. Estimate -17.1%. Actual -14.3%.

6:00 BoJ Outlook Report.

6:31 BoJ Press Conference.

12:30 US Core CPI Price Index. Estimate 0.1%.

12:30 US Employment Cost Index. Estimate 0.6%.

12:30 US Personal Spending. Estimate 0.2%.

12:30 US Personal Income. Estimate 0.3%.

13:45 US Chicago PMI. Estimate 60.2 points.

13:55 US Revised UoM Consumer Sentiment. Estimate 86.4 points.

13:55 US Revised UoM Inflation Expectations.

*Key releases are highlighted in bold

*All release times are GMT

Gold Prices Sink on Strong US Numbers

Gold prices continue to lose ground on Friday, as the spot price trades at $1174.86 per ounce in the European session. Gold has slipped to its lowest level since 2014, and has tumbled 4.4% since Tuesday. Will the dollar rally continue? On the release front, today’s highlight is Revised UoM Consumer Sentiment. The markets are expecting the indicator’s upward trend to continue, with the estimate standing at 86.4 points.

The US dollar gained about 100 points on Wednesday, boosted by a hawkish Fed policy statement. The Fed said that the labor market is strengthening and inflation remains on target, although it did note that the labor market participation rate remains low. As expected the Fed completed the taper of its QE3 program. The asset-purchase program was initially started in 2008, at the height of the economic crisis, in order to boost a weak US economy. The termination of the QE is a symbolic step which is a vote of confidence from the powerful Fed that the US economy is on the right track.

XAU/USD for Friday, October 31, 2014

XAU/USD October 31 at 10:10 GMT

XAU/USD 1174.86 H: 1202.71 L: 1167.06

XAU/USD Technical

1111

1130

1156

1200

1215

1240

Gold lost ground late in the Asian session and continues to weaken in European trading.

1200 has switched to a resistance role as gold trades as gold trades at lower levels. 1215 is next.

On the downside, 1156 is under pressure. Will the pair break below this level?

Current range: 1156 to 1200.

Further levels in both directions:

Below: 1156, 1130, 1111 and 1073

Above: 1200, 1215, 1240, 1252 and 1275

OANDA’s Open Positions Ratio

XAU/USD ratio is pointing to gains in short positions on Friday, reversing the direction seen a day earlier. This is consistent with the pair, as gold continues to post losses. The ratio has a majority of long positions, indicative of trader bias in favor of gold reversing ground and moving higher.

XAU/USD Fundamentals

12:30 US Core CPI Price Index. Estimate 0.1%.

12:30 US Employment Cost Index. Estimate 0.6%.

12:30 US Personal Spending. Estimate 0.2%.

12:30 US Personal Income. Estimate 0.3%.

13:45 US Chicago PMI. Estimate 60.2 points.

13:55 US Revised UoM Consumer Sentiment. Estimate 86.4 points.

13:55 US Revised UoM Inflation Expectations.

*Key releases are highlighted in bold

*All release times are GMT

U.S. Stocks Boosted by GDP Figures

U.S. stocks rallied as a report showed faster-than-estimated growth in gross domestic product, fueling speculation the economy is strong enough to withstand higher interest rates.

Visa Inc. and MasterCard Inc. (MA) added more than 9 percent each as the two largest U.S. payment networks reported results that topped estimates. Bristol-Myers Squibb Co jumped 8.9 percent after a drug improved survival rates for cancer patients. Energy shares retreated as oil resumed a selloff after U.S. production rose to the highest level since the 1980s.

The Standard & Poor’s 500 Index (SPX) rose 0.6 percent to a one-month high of 1,994.65 at 4 p.m. in New York, closing within 1 percent of its last record on Sept. 18. The Dow Jones Industrial Average rallied 221.11 points, or 1.3 percent, to 17,195.42. Visa is the Dow’s largest member by weighting. The Russell 2000 Index increased 0.8 percent and the Nasdaq Composite Index climbed 0.4 percent

Bloomberg

Gold Drops to $1200 Erasing 2014 Gains

The more the U.S. economy improves, the worse things get for gold. Bullion fell below $1,200 an ounce today, erasing its gains for the year, after the government reported that the U.S. grew at a faster pace than analysts forecast in the third quarter. A stronger economy is validating optimism that prompted the Federal Reserve to say yesterday that it will stop buying debt, further diminishing the appeal of precious metals an inflation hedge. Silver tumbled to a 55-month low.

Global holdings in exchange-traded products backed by gold have dropped to the lowest in five years. In China, the world’s top bullion buyer, the government sent investigators to probe a sevenfold surge in precious-metals exports, raising concern demand in the country will slide. Imports in India, the second-biggest consumer, are poised to plunge this month, a jewelers’ group said.

“In the current environment, we see no reason to own gold,” Scott Gardner, who helps manage $450 million at Verdmont Capital SA in Panama City, said in a telephone interview. “Some people were disappointed with yesterday’s Fed statement since they expected it to be more dovish in light of a stronger dollar, and we continue to see some good U.S. economic data.”

Bloomberg

Corn Steady at $3.70 after Signs of Fading Demand

Corn fell from the highest price since August as demand dropped for shipments from the U.S., the world’s largest exporter, and an industry group raised its global production forecast.

Exporters in the week ended Oct. 23 sold 489,820 metric tons for delivery by the end of August, less than half the total a week earlier, the U.S. Department of Agriculture said today in a report. World corn output will be 979.7 million tons, topping last month’s forecast of 974.2 million, on bigger crops in the U.S. and Europe, the London-based the International Grains Council said.

“The drop in export business is an indication that consumers are not going to chase supplies at higher prices,” Shawn McCambridge, the senior grain analyst for Jefferies LLC in Chicago, said in a telephone interview.

Bloomberg

Yield Difference Narrows on U.S. Treasuries on Rate Bets

The difference between yields on U.S. two- and 30-year debt narrowed to almost lowest level since November 2012 on speculation the Federal Reserve will raise interest rates next year while inflation remains restrained.

Treasuries rallied as investors sought to mirror month-end changes in benchmark indexes and on lower-than-projected consumption spending, tempering a report that showed the U.S. economy grew more than forecast in the third quarter. Even with the drop in yields, demand from international investor increased as German equivalent yields tumbled. The U.S. auctioned $29 billion of seven-year notes, concluding four sales this week totaling $108 billion.

“The Fed is moving incrementally closer to tightening, but the long-term securities are outperforming both on the view inflation is not going to be a risk anytime soon, and relative value against our global counterparts,” said Thomas Simons, a government-debt economist in New York at Jefferies Group LLC, one of 22 primary dealers that trade with the Fed. “It’s funny to think of Treasuries as relatively high-yielding, but they are when you look at high-grade European debt.”

Bloomberg

U.S. 3Q GDP up 3.5%

A smaller trade deficit and a surge in defense spending buoyed U.S. economic growth in the third quarter, but other details of Thursday’s report hinted at some loss of momentum in activity.

Gross domestic product grew at a 3.5 percent annual rate, the Commerce Department said on Thursday, beating economists’ expectations for a 3.0 percent pace.

While the pace of growth in business investment, housing and consumer spending slowed from the second quarter, all those categories contributed to growth.

CNBC

UK Housing Continues to Weaken in October

The latest poll, by YouGov for The Sun newspaper, suggests left-wing Labour are leading with a 34 percent share of the vote, while the ruling Conservative Party are at 31 percent. The more interesting news is further down the rankings, where anti-EU U.K. Independence Party (UKIP) are showing a 17 percent rating, outstripping the Liberal Democrats (LibDems), currently the junior coalition party in government, with 6 percent. The LibDems have also fallen behind the Green Party — which like UKIP has just one elected member of parliament — suggesting that the position as the third party in the country is in danger of wipeout.

“A variety of indicators suggest that the market has lost momentum,” Robert Gardner, Nationwide’s Chief Economist, said in the report. “The number of mortgages approved for house purchase in September was almost 20 percent below the level prevailing at the start of the year.”
“Some forward looking indicators, such as new buyer inquiries, suggest that activity may soften further in the near term, especially in London,” Gardner warned.

via CNBC

U.S. Banks are now Buying Treasuries

The end of the Federal Reserve’s quantitative easing program and its fight against “too big to fail” banks are on a collision course in the bond market. When quantitative easing ends in October, the market for Treasurys and mortgage-backed securities will see its biggest net buyer stepping back.

But because of new regulations requiring the country’s big banks to hold more liquid assets, new buyers from Wall Street have been stepping up. Since the “tapering” of the Fed’s bond buying began in earnest in December 2013, U.S. commercial banks’ holdings of Treasury and agency securities (not including mortgage-backed securities) rose to $605 billion, a 23 percent increase. Including mortgage-backed securities, that total swells to $1.97 trillion, according to data from the Federal Reserve Bank of St. Louis.

Earlier this year, the Fed finalized a rule requiring banks to hold enough liquid, easy-to-sell assets to cover 30 days of operations should the economy get in a bind again. The rule, called the “liquidity coverage ratio,” requires banks to be mostly compliant by January 2015 and fully compliant by 2017.

CNBC

EUR/USD – Euro Weakens as German Retail Sales Plunge

EUR/USD continues to lose ground on Friday, as the pair trades in the mid-1.25 range in the European session. On the release front, it’s a busy day in the Eurozone and the US. In the Eurozone, German Retail Sales posted a sharp decline of 3.2%. French Consumer Spending came in at -0.8%. In the US, today’s highlight is Revised UoM Consumer Sentiment. The markets are expecting the indicator’s upward trend to continue, with the estimate standing at 86.4 points.

It’s been a rough week for German releases, as the Eurozone’s largest economy continues to struggle. On Friday, Retail Sales were dismal, plunging by 3.5%. This marked the sharpest decline since October 2007. The markets had expected a decline of 0.8%. Consumer Climate and CPI softened in September, although Unemployment Change was better than expected. Meanwhile, Eurozone CPI edged upwards to 0.4%, matching the forecast. Core CPI and the Unemployment Rate remained unchanged, at 0.7% and 11.5% respectively.

EUR/USD for Friday, October 31, 2014

EUR/USD October 31 6:00 GMT

EUR/USD 1.2567 H: 1.2609 L: 1.2541

EUR/USD Technical

1.2286

1.2407

1.2518

1.2688

1.2806

1.2905

EUR/USD weakened late in the Asian session. The euro is stable in European trade.

1.2688 remains a strong resistance line.

1.2518 is an immediate support level. 1.2407 is stronger.

Current range: 1.2518 to 1.2688

Further levels in both directions:

Below: 1.2518, 1.2407, 1.2286 and 1.2143

Above: 1.2688, 1.2806, 1.2905, 1.2984 and 1.3104

OANDA’s Open Positions Ratio

EUR/USD ratio is pointing to gains in long positions on Friday, continuing the trend seen a day earlier. This is not consistent with the movement of the pair, as the euro continues to lose ground. The ratio has a majority of long positions, indicative of trader bias towards the euro reversing direction and moving higher.

EUR/USD Fundamentals

7:00 German Retail Sales. Estimate -0.8%. Actual -3.2%.

7:45 French Consumer Spending. Estimate -0.3%. Actual -0.8%.

9:00 Italian Monthly Unemployment Rate. Estimate 12.4%. Actual 12.6%.

10:00 Eurozone CPI Flash Estimate. Estimate 0.4%. Actual 0.4%.

10:00 Eurozone Core CPI Flash Estimate. Estimate 0.8%. Actual 0.7%.

10:00 Eurozone Unemployment Rate. Estimate 11.5%. Actual 11.5%.

10:00 Italian Preliminary CPI. Estimate -0.1%. Actual +0.1%.

12:30 US Core CPI Price Index. Estimate 0.1%.

12:30 US Employment Cost Index. Estimate 0.6%.

12:30 US Personal Spending. Estimate 0.2%.

12:30 US Personal Income. Estimate 0.3%.

13:45 US Chicago PMI. Estimate 60.2 points.

13:55 US Revised UoM Consumer Sentiment. Estimate 86.4 points.

13:55 US Revised UoM Inflation Expectations.

*All release times are GMT

*Key releases are highlighted in bold.

BoJ’s brings ‘Trick or Treat’ to work

The forex space has been waiting a long time for a plethora of monetary and policy reasons to once again ignite currency moves. For too long, CBanks no-nonsense, low rate approach had been curtailing currency ranges. The Fed’s end to tapering this week supported the buck as investors focused on a robust U.S labor market and not the potential for higher rates. The RBNZ dovish remarks have the Kiwi underperforming and finally, the BoJ’s overnight actions have again side swiped the market – all three have contribute to an interesting closeout to October. The net result has been a stronger dollar mostly across the board, higher equity prices and a spike in U.S yields.

Most things look rosy for the U.S. Even yesterday’s Q3 GDP (+3.5% q/q) data shows that the U.S economy continues to lead the global recovery. Despite deflationary challenges in the eurozone, and slower growth concerns in the emerging markets (China, Brazil and Mexico), the US has managed to register two consecutives strong quarters (Q2 +4.6% and yesterday’s +3.5%). Forever, the disappointing print in Q1 this year (-2.1%) will continue to be attributed to “transitory” factors.

U.S Government spending distorts

The initial market reaction painted a healthy-looking picture, nevertheless, digging deeper into the numbers, the big gain in government spending was responsible for much of the outperformance, while the fixed investment, exports and imports all declined. Federal government spending broke a long string of declines by growing at a 10% rate in the quarter. Nevertheless, global investors continue to see the U.S as the global economic beacon while other regions continue to struggle.

CBanks again dominate the landscape this week and next. In mid-week, the Fed surprisingly focused on the “robust” U.S labor market. This could suggest that Ms. Yellen and company is trying to prep the market for a bigger change in December. One of the responsible roles for any central banker is to ease into a significant policy change. This helps policymakers eliminate any surprise shocks that could potentially harm an economy. The Fed does indeed need to get the market primed and ready for an eventual rate hike. The fruits of their labor are beginning to show with FI beginning to price in the first rate hike sooner than later.

After the Fed it was the RBNZ and they too flatfooted the market. Governor Wheeler kept Kiwi rates on hold at +3.5% for the second consecutive meet, but removed policy maker’s bias in favor of more tightening in light of the softer-than-expected inflation pressure. New Zealand inflation has slowed more than expected in Q3, hovering close to the bottom of the RBNZ’s +1-3% desired range. The RBNZ indicated “a period of assessment remains appropriate before considering further policy adjustment.” It was only natural that the NZD would come under pressure with the dovish tone (NZD$0.7846).

BoJ does it “my way”

By dropping no hints of imminent action, instead playing down doubts over Japan’s economic price prospects has allowed the BoJ to be able to spring the biggest of Halloween surprises. Governor Kuroda likes to shock, as he is looking for the markets biggest impact. Overnight, the BoJ unexpectedly announced additionally stimulus measures which includes upping its asset purchases total to 80-trillion from the previous 60-70-trillion target range. This is the first time in 18-months that Japanese policy makers have bolstered its asset purchases; especially as its +2% inflation target looks increasingly unattainable.

The BoJ lost its way ever since April’s consumption sales tax was introduced. The net result of a tax hike has only dampened consumer spending, further hindering the economic problems of the world’s third largest economy. Interest rate divergence (US “less” dovish, Japan dovish) is expected to have broad implications for investors and the market. With the BoJ moving in the opposite direction should benefit Japanese exporters by weakening the Yen further against the dollar (this week the yen has weakened from 107.65 to this morning’s 111.65). The news has sent the Nikkei benchmark to print a seven-year intraday high, while the dollar continues to find support.

Governor Kuroda indicated that they have not run out of ammunition. He firmly rejected the notion that there is little the BoJ can do if the rate of inflation again defies policy maker’s objections. Perhaps more importantly, Kuroda insisted that the BoJ has not shifted back to an “incremental” policy change. Yesterday’s large policy expansion is considered a “pre-emptive” strike to hit the +2% inflationary target sooner, it’s not about a weaker Yen aiding exporters, nor has anything to do with Abe and raising the national sales tax next year – it’s all about hitting the +2% inflation target a tad earlier – it’s a large reasoning pill for the markets to swallow!

Forex heatmap

U.S. Stocks Supported by Solid Economic and Corporate News

The stock market rose on Thursday, helped by a strong reading on quarterly economic growth and by another round of positive earnings reports. Visa, which posted strong results, accounted for about 140 points of the 221-point gain in the Dow Jones industrial average.

Despite the bullish data and the Federal Reserve’s statement on Wednesday that the economy was strengthening, the gains on the Standard & Poor’s 500-stock index were led by health care and utility stocks, which are considered defensive sectors.

Analysts cited purchases by mutual funds of the best performing stocks for the gain in those sectors, as funds close their books for the year at the end of this month. Health care and utilities are both up nearly 20 percent year to date.

NY Times

Slump Concerns Ease in Europe

Economic sentiment in the euro area unexpectedly rose in October in a sign that the 18-nation region has moved one step away from a renewed economic downturn.

An index of executive and consumer confidence increased to 100.7 from 99.9 in September, the first gain in three months, the European Commission in Brussels said today. Economists predicted a drop to 99.7, according to a Bloomberg survey. There was also positive news in Germany, Europe’s largest economy, where unemployment unexpectedly fell the most in six months.

The increase in confidence may help the region escape a spiral of falling sentiment and investment that could curb output after the economy stagnated in the second quarter. With the recovery struggling to get going, the European Central Bank is continuing to add stimulus to revive growth and inflation.

Bloomberg

Asian Equities Higher as U.S. Growth Improves

Asian stocks rose after the U.S. economy grew faster than forecast and amid a report that Japan’s $1.2 trillion Government Pension Investment Fund will increase holdings of equities.

The MSCI Asia Pacific Index (MXAP) climbed 0.4 percent to 140.82 as of 9:01 a.m. in Tokyo, before markets opened in China and Hong Kong. The gauge has advanced 2.4 percent this week, the first back-to-back weekly gains since August, after the Federal Reserve said it will end its quantitative easing program as the world’s largest economy strengthens.

The American economy expanded at a more-than-estimated annualized rate of 3.5 percent last quarter, capping its strongest six months in a decade, while other data showed fewer Americans filed applications for unemployment benefits over the past month than at any time in more than 14 years.

Bloomberg

GBP/USD Drops to 1.60 on BOE Bets

The pound is losing ground against the dollar as traders bet the Bank of England is likely to trail behind the Federal Reserve in raising interest rates.

“The Bank of England has surrendered leadership in the race to try to normalize monetary policy,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. A weaker pound is “a reflection of the softer outlook for the U.K. relative to where we were.”

Sterling dropped the most in two weeks yesterday after the Federal Reserve ended its bond-purchase stimulus program, citing an improving U.S. labor market. BOE deputy governor Jon Cunliffe said today the central bank will keep supporting Britain’s recovery as long as it can while keeping a lid on inflation. U.K. government bonds rose with German bunds as data showed consumer prices declined in Europe’s largest economy this month.

Bloomberg

Challenges Abound for BOJ after Japan Inflation Slows

Japan’s inflation slowed to its lowest pace in half a year, underlining the challenge to central bank chief Haruhiko Kuroda’s efforts to reflate the world’s third-biggest economy.

Consumer prices excluding fresh food increased 3.0 percent in September from a year earlier, the statistics bureau said today in Tokyo, in line with a median projection in a Bloomberg News survey of economists. Stripped of the effect of April’s sales-tax increase, core inflation — the Bank of Japan’s key measure — was 1.0 percent.

Weak price gains are a blow to Kuroda, who is targeting 2 percent inflation and said in July there was no possibility that the bank’s price gauge would fall below 1 percent. The BOJ is forecast to maintain its unprecedented easing today, even as oil prices decline and the board considers moderating language on the consumer price outlook.

Bloomberg

U.S. Dollar Hits 3-Week High after GDP

The dollar touched a three-week high against its major counterparts as the U.S. economy expanded more than forecast in the third quarter to confirm the Federal Reserve’s decision yesterday to end its bond-buying program.

The yen declined after the Nikkei newspaper reported Japan’s Government Pension Investment Fund will raise its allocation of domestic stock to 25 percent and lower Japanese debt to 35 percent. The euro added to its biggest annual drop since 2005 before a report tomorrow that analysts said will show inflation remained below the European Central Bank’s target. Brazil’s real rallied after an unexpected rate increase, while Norway’s krone reached the lowest since 2009. The ruble soared.

“The real theme that’s driving markets is divergence — we received new information from the Fed yesterday and the dollar rally is back in play,” said Mark McCormick, a foreign-exchange strategist in New York at Credit Agricole SA. “For many years, the GPIF has had a conservative approach to investing,” and the reform will lead to outflows from Japan into overseas debt, McCormick said.

Bloomberg

Japan Index Futures Rise

Japanese index futures climbed amid speculation the nation’s pension fund will announce plans to boost equity investments today, while the yen held losses before a review of central-bank policy. Crude oil extended declines and silver traded near its lowest price since 2010.

Nikkei 225 Stock Average futures in Chicago gained 0.4 percent by 8:43 a.m. in Tokyo, rising a for fourth day as the yen headed for its second weekly drop versus the dollar. The S&P/ASX 200 Index added 0.5 percent in Sydney while futures on the Standard & Poor’s 500 Index were little changed after the stock gauge rallied 0.6 percent. Citigroup (C) Inc. slipped more than 2 percent in extended U.S. trading. Oil in New York fell for a second day. Silver was steady at $16.5112 an ounce.

Japan’s Government Pension Investment Fund will raise its domestic and foreign stock allocation targets to 25 percent each, the Nikkei newspaper said. An announcement is due today, along with a statement from the Bank of Japan, which is engaged in record stimulus to bolster Asia’s second-largest economy. The U.S. economy capped its best six months of growth in a decade last quarter, supporting the Federal Reserve’s decision to bring its bond-buying program to an end this month.

Bloomberg

Gold – Drops Sharply Below $1200

Gold for Friday, October 31, 2014

In the last week gold has resumed the medium term down trend falling from above $1250 back down through the key $1240 level and down below $1200 in recent hours. A couple of weeks ago Gold ran into the previous key level at $1240, however it also managed to surge higher to a five week high at $1255 early last week. In the last few days to finish last week however it fell strongly back down below the $1240 level and to near $1226 before rallying a little higher and steadying around the $1230 level. In the last 48 hours it has fallen strongly. After enjoying some solid support at $1215 for a couple of weeks, gold dropped to its lowest level in 2014 near $1180 earlier this month.

The next obvious level of potential support remains at $1200 which is a long term key level, and where gold is presently trading. Several weeks ago Gold was enjoying a resurgence as it moved strongly higher off the support level at $1275, however it then ran into resistance at $1290. In the week prior, Gold had been falling lower back towards the medium term support level at $1290 however to finish out last week it fell sharply down to the previous key level at $1275. During the second half of June, gold steadily moved higher but showed numerous incidents of indecision with its multiple doji candlestick patterns on the daily chart. This happened around $1320 and $1330. The OANDA long position ratio for Gold has moved back to above 65% as gold has fallen back down through the $1240 level.

At the beginning of June, gold did very well to repair some damage and return to the key $1275 level, then it has continued the momentum pushing a higher to its recent four month high. After moving so little for an extended period, gold dropped sharply back in May from above the well established support level at $1275 as it completely shattered this level falling to a four month low around $1240. It remained around support at $1240 for several days before its strong rally higher. It pushed down towards $1280 before sling shotting back and also had an excursion above $1300 for a short period before moving quickly back to the $1293 area again.

Gold settled at its lowest level in nearly 4 weeks on Thursday after the Federal Reserve ended its bond-buying stimulus program with unexpectedly upbeat comments about the economy. U.S. December gold futures ended $26.30, or 2.2 percent, lower at $1,198.60 an ounce, its lowest close since October 3. Meanwhile, spot gold was down 1 percent at $1,199 an ounce and silver tumbled to its lowest price since March 2010 at $16.45. The Fed statement on Wednesday, coupled with unexpectedly strong third-quarter U.S. economic growth data, sent the dollar to its highest since Oct. 6, while U.S. interest rate futures shifted to show better-than-even chances of a rate rise next September. Previously, they had indicated a rise in October. That dented interest in gold, which as a non-yielding asset tends to benefit from ultra-low rates. The U.S. central bank largely dismissed financial market volatility, a slowdown in Europe and a weak inflation outlook as factors that might limit progress towards its unemployment and inflation goals.

(Daily chart / 4 hourly chart below)

g_20141031 g_20141031_4hour

Gold October 30 at 22:50 GMT 1200 H: 1216.8 L: 1196.1

Gold Technical

1200

—

1255

1290

—

During the early hours of the Asian trading session on Friday, Gold is trying to rally back and hold onto the $1200 level after falling so sharply in the last couple of days. Current range: trading right around $1200.

Further levels in both directions:

• Below: 1200.

• Above: 1255 and 1290.

OANDA’s Open Position Ratios

(Shows the ratio of long vs. short positions held for Gold among all OANDA clients. The left percentage (blue) shows long positions; the right percentage (orange) shows short positions.)

The long position ratio for Gold has surged back up to near 68% as gold has dropped sharply back down below $1200. The trader sentiment is strongly in favour of long positions.

Economic Releases

00:05 UK GfK Consumer Confidence (Oct)

04:00 JP Housing starts (Sep)

04:00 JP Construction orders (Sep)

10:00 EU Flash HICP/ Core (Oct) (y/y)

10:00 EU Unemployment (Sep)

12:30 CA GDP (Aug)

12:30 US Personal income & spending (Sep)

12:30 US Core PCE Price Index (Sep)

13:45 US Chicago PMI (Oct)

13:55 US Univ of Mich Sent. (Final) (Oct)

JP BoJ Monetary Policy meeting

JP BoJ Publication of Outlook Report

* All release times are GMT

West TX Oil near $81 on Fed Stimulus Halt

West Texas Intermediate oil fell after the Federal Reserve ended its asset-purchase program and U.S. crude production surged to the highest level since the 1980s. Brent declined in London.

Futures slipped 1.3 percent in New York. The dollar strengthened a second day against the euro after the Fed’s announcement, curbing the appeal of commodities priced in the U.S. currency as a store of value. U.S. crude supplies rose for a fourth week as output increased to 8.97 million barrels a day, Energy Information Administration data showed yesterday.

“Yesterday’s Fed announcement is pushing the dollar higher, which is putting selling pressure on commodities,” Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said by phone. “The supply build yesterday may have been smaller than expected but it was still quite large. Ample supply and economic worry are going to continue to weigh on the market.”

Bloomberg

Asian Equities Looking to Finish the Week Well

Asian stocks are headed for a strong session on the final trading day of the week following positive U.S. data overnight, while investors turn their focus to Japan.

Australia’s benchmark S&P ASX 200 rose to its highest level since September 15, rising for a second session, with financials in focus on the back of earnings results.

Australia New Zealand Banking jumped 0.7 percent after posting a 10 percent rise in full-year cash profit while Macquarie rallied 2 percent after first-half net profit rose 35 percent.

CNBC

U.S. Dollar Enjoying Support from Fed and GDP

The U.S. dollar on Thursday extended recent gains to a 3-1/2-week high, boosted by unexpectedly strong third-quarter U.S. economic growth and a newly hawkish tone from the Federal Reserve.

A U.S. Commerce Department report showed third-quarter gross domestic product grew by 3.5 percent versus the Reuters 3.0 percent mean forecast of economists.

The data backed up Wednesday’s bullish statement on the U.S. economy by the Fed and added to buying momentum that has lifted the dollar over 8 percent on a trade-weighted basis since July.

CNBC

Japan Nationwide Core CPI Up 3%

Japan’s nationwide core consumer prices rose 3 percent in September from a year ago, data on Friday showed. The rise in the core consumer price index (CPI), which excludes volatile food prices, was in line with analyst expectations in a Reuters poll. In August, core consumer prices rose 3.1 percent.

In April, the government raised the sales tax to 8 percent from 5 percent to rein in the country’s debt-to-GDP ratio. It was the first tax increase in 17 years. A second tax hike to 10 percent is planned for next year, however it has not been set in stone. Prime Minister Shinzo Abe is expected to make a decision in December based on the state of the Japanese economy.

Below-target inflation has raised speculation that the Bank of Japan (BOJ) could pursue additional stimulus and may push back its inflation target to a later date. Investors will watch the central bank’s policy meeting and biannual Economic Activity and Prices report, due later Friday, for further clues on this front.

CNBC

U.S. Yields Lower after Lackluster Sale

The Treasury Department auctioned $29 billion in seven-year at a high yield of 2.018 percent, the lowest since May. The bid-to-cover ratio, an indicator of demand, was the weakest since November at 2.42.

Indirect bidders, which include major central banks, were awarded 46.6 percent, above the 45 percent recent average. Direct bidders, which includes domestic money managers, brought 15.4 percent, compared to a recent average of 20 percent.

Prices for benchmark 10-year Treasury notes rose 3/32 to yield 2.31 percent on Thursday late morning, down from a three-week peak of around 2.36 percent on Wednesday after the Federal Reserve announced the end of quantitative easing. Prices and yields are inversely related.

CNBC

UK Elections in Six Months Big Geopolitical Risk

The U.K. is facing its most uncertain political future for decades – some argue centuries.

With just over six months until the general election on May 7, predicting who will hold the balance of power is becoming increasingly difficult – and worrying – for investors. The election will affect more than just U.K. voters, it’ll also decide whether the country stays part of the the European Union (EU).

“This is the first time in a couple of centuries we have had so many possible outcomes,” James Bateman, head of portfolio management at Fidelity, told CNBC, as he warned of more volatility in the lead-up to election.

via CNBC

The Future of Asia’s Exports in Limbo

Asia’s export growth has stalled since a post-financial crisis recovery, faced with a combination of weak global demand and structural changes, HSBC said. “Asia’s trade engine has lost its spark,” HSBC said in a note Tuesday, noting that the region’s shipment growth has slowed from an average of 20 percent over 2004-2007 to just 9.6 percent from 2011-2013.

While the bank expects some of the slowdown to reverse, especially as U.S. demand appears to be stabilizing, “the bad news is that developed market demand, while on the mend, is unlikely to deliver the same boost to Asian exports as it did in the past,” HSBC said, adding that developed market demand is likely to remain structurally lower.

Both the Euro zone and Japan are grappling with high government debt and aging demographics, while in the U.S., growth was previously propped up by unsustainable household credit, it noted. But it’s not just developed markets weighing on emerging Asia exports, HSBC said, noting that the U.S., Europe and Japan together account for only 32 percent of the region’s exports, with much of the past’s shipment growth coming from other emerging markets, most especially China.

CNBC

Talk Commences About Possible QE4

As the Fed gets set to stop QE, Wall Street is already speculating the central bank could crank up a new bond-buying program to take its place if the economy sours.

While the odds aren’t high, Fed watchers, surveyed by CNBC, saw a 1-in-7 chance the central bank would launch another QE program within the next 12 months, but they saw a 1-in-6 chance of a new round of bond buying within two years. They also saw a 15.1 percent chance of a recession in the next year.

“I think at this point, people and economists, have become conditioned, and not incorrectly, that when things turn south that QE is just a part of the toolkit, rather than some sort of unusual policy,” said Daniel Greenhaus, chief global strategist at BTIG. “With interest rates this low, that’s probably not an unfair assumption.”

CNBC

U.S. Dollar Moves Strongly after Fed Optimism

The dollar stayed on the front foot on Thursday, holding near prior session highs as it basked in the afterglow of the Federal Reserve’s optimistic take on the U.S. economic recovery, raising the odds of policy tightening sooner rather than later.

The Federal Open Market Committee released a statement after its two-day meeting that underscored the improving U.S. labor market, but said interest rates would remain low for a “considerable time.”

The statement largely dismissed recent financial market volatility, European growth challenges and a weak inflation outlook. The central bank ended its monthly bond purchase program as widely expected, pushing up U.S. yields and increasing the greenback’s appeal.

CNBC

AUD/USD – Drops Sharply Back Below Resistance at 0.88

AUD/USD for Thursday, October 30, 2014

In the last 12 hours or so the Australian dollar has fallen sharply back down through the resistance level at 0.88 after reaching a two week high just above 0.89. During the last month the Australian dollar has done well to stop the bleeding and trade within a wide range roughly between 0.8650 and 0.88. Prior to that it had experienced a sharp decline throughout September which saw it move from close to 0.94 down to below 0.8650 and an eight month low in the process. The resistance level at 0.88 remains a factor and is continuing to place downwards pressure on price, however more recently all eyes have turned on to the support level at 0.8650 to see if the Australian dollar can remain above it. Several weeks ago the Australian dollar found some much needed support at 0.8950 and rallied back up to just shy of the key 0.90 level before resuming its decline. The long term key level at 0.90 was called upon to desperately provide some much needed support to the Australian dollar, which it did a little a few weeks ago, however it has more recently provided resistance.

Back at the beginning of September the Australian dollar showed some positive signs as it surged higher again bouncing off support below 0.93 and reaching a new four week high around 0.94 however that all now seems a distant memory. The Australian dollar reached a three week high just shy of 0.9480 at the end of July after it enjoyed a solid period which saw it surge higher through the resistance level at 0.9425 to the three week around 0.9480, before easing back towards that level. The Australian dollar enjoyed a solid surge higher reaching a new eight month high above 0.95 at the end of June, only to return most of its gains in very quick time to finish out that week. Since the middle of June the Australian dollar has made repeated attempts to break through the resistance level around 0.9425, however despite its best efforts it was rejected every time as the key level continued to stand tall, even though it has allowed the small excursion to above 0.95.

After the Australian dollar had enjoyed a solid surge in the first couple of weeks of June which returned it to the resistance level around 0.9425, it then fell sharply away from this level back to a one week low around 0.9330 before rallying higher yet again. Its recent surge higher to the resistance level around 0.9425 was after spending a couple of weeks at the end of May trading near and finding support at 0.9220. Throughout April and into May the Australian dollar drifted lower from resistance just below 0.95 after reaching a six month high in that area and down to the recent key level at 0.93 before falling lower. During this similar period the 0.93 level has become very significant as it has provided stiff resistance for some time. The Australian dollar appeared to be well settled around 0.93 which has illustrated the strong resurgence it has experienced throughout this year.

Not even super-low interest rates are tempting consumers and businesses out of spending hibernation in Australia. Business confidence was flat in the September quarter, according to figures from the National Australia Bank last Thursday. Forward orders eased, suggesting sluggish domestic demand, and while business conditions did rise, most of the gains came from a surprise jump in July which had since eased off, the report said. NAB chief economist Alan Oster said expectations of any significant rebound in domestic demand were premature. “Both consumers and business remain cautious about spending, despite encouragement from very low interest rates, which is unsurprising given slower rates of income growth,” he said. “Consequently, corporate leverage ratios are low and household savings rates remain high, although there have been signs of improvement more recently.” On the plus side, strong residential construction, boosted by low interest rates and strong investor demand, including foreign investors, would have flow-on effects to the rest of the economy, Mr Oster said. Recent falls in the Australian dollar would also help export competitiveness, but could have a negative impact for some businesses, he said.

(Daily chart / 4 hourly chart below)

a_20141030 a_20141030_4hour

AUD/USD October 30 at 01:00 GMT 0.8774 H: 0.8800 L: 0.8760

AUD/USD Technical

0.8650

—

0.8800

0.9000

0.9100

During the early hours of the Asian trading session on Thursday, the AUD/USD is trying to hold on to the resistance level at 0.88 after recently falling sharply back down through there. The Australian dollar was in a free-fall for a lot of last year falling close to 20 cents and it has done very well to recover slightly to near 0.95 again earlier this year. Current range: trading right around 0.8775.

Further levels in both directions:

• Below: 0.8650.

• Above: 0.8800, 0.9000, and 0.9100.

OANDA’s Open Position Ratios

(Shows the ratio of long vs. short positions held for the AUD/USD among all OANDA clients. The left percentage (blue) shows long positions; the right percentage (orange) shows short positions.)

The long position ratio for the AUD/USD has moved back towards 65% as the Australian dollar has fallen sharply back down below the resistance level at 0.88 again. The trader sentiment remains in favour of long positions.

Economic Releases

21:45 (Wed) NZ Building Permits (Sep)

22:30 (Wed) JP CPI Core (Nation/ Tokyo) (Sep)

22:30 (Wed) JP Real Household Spending (Sep)

22:30 (Wed) JP Unemployment (Sep)

23:30 (Wed) AU PPI (Q3)

23:30 (Wed) AU Private Sector Credit (Sep)

10:00 EU Business Climate Index (Oct)

10:00 EU Economic/Industrial/Consumer Sentiment (Oct)

12:30 US Core PCE Price Index (1st Est.) (Q3)

12:30 US GDP Annualised & Price Index (1st Est.) (Q3)

12:30 US Initial Claims (25/10/2014)

* All release times are GMT

OPEC Countries Boost Oil Output to 14 Month High

OPEC countries boosted oil output to a 14-month high in October as crude futures sank into a bear market, a Bloomberg survey showed yesterday.

Production by the 12-member Organization of Petroleum Exporting Countries climbed by 53,000 barrels a day to 30.974 million, led by gains in Iraq, Saudi Arabia and Libya, according to the survey of oil companies, producers and analysts. Last month’s total was revised 14,000 barrels a day lower to 30.921 million because of changes to the Iraqi, Kuwaiti, Nigerian and Qatari estimates.

OPEC nations lifted output as Brent crude dropped to a four-year low amid ample global supplies and sluggish demand. The group’s biggest producers, Saudi Arabia, Iraq, Iran and Kuwait, have cut their official selling prices, sparking speculation they will compete for market share rather than trim output. Ministers will gather next month to discuss the group’s production target.

Bloomberg

West TX Oil Near $81 After Another Poor Month

West Texas Intermediate headed for the biggest monthly decline in more than two years amid signs that OPEC boosted output to a 14-month high even as crude slumped into a bear market. Brent slid in London.

Futures fell as much as 0.3 percent in New York, bringing October’s drop to about 11 percent. Production from the 12-member Organization of Petroleum Exporting Countries increased by 53,000 barrels a day to 30.974 million, a third monthly gain, a Bloomberg survey shows. The Federal Reserve said this week the U.S. labor market has strengthened enough to withstand an end to its unprecedented asset-purchase program.

Oil has collapsed into a bear market amid rising global supplies as leading OPEC members resisted calls to cut output before a policy meeting next month. The U.S. is pumping at the fastest pace in more than three decades while Russia’s production has climbed to near a post-Soviet record.

Bloomberg

Gold Headed for Consecutive Monthly Loss

Gold headed for the first consecutive monthly loss in 2014 after erasing gains for the year as the Federal Reserve ended its asset-purchase program amid signs of an improving U.S. economy. Silver dropped to the lowest since February 2010.

Bullion for immediate delivery traded at $1,198.94 an ounce at 11:36 a.m. in Singapore from $1,198.85 yesterday, according to Bloomberg generic pricing. The metal yesterday sank to $1,196.07, the lowest since Oct. 6, as U.S. gross domestic product beat estimates in the third quarter and China probed a surge in precious-metals exports. Assets in the largest exchange-traded product dropped to a six-year low.

Gold is 0.8 percent lower in October after losing 6.2 percent last month, and the metal yesterday erased the year’s advance as the Bloomberg Dollar Spot Index rose to a three-week high. Fed officials this week cited an improving job market in deciding to end bond-buying, while maintaining a commitment to keep interest rates low for a considerable time. The central bank has held its key rate at zero to 0.25 percent since 2008.

Bloomberg

Asian Equities Higher on Brightening U.S. Prospects

Asian shares ticked higher on Friday as investors cheered upbeat U.S. growth data, while the dollar held near four-week highs against the yen as markets awaited the outcome of the Bank of Japan’s monetary policy meeting. The BOJ is widely expected to maintain its massive asset buying program and its upbeat forecast that inflation will hit its 2 percent target next year, suggesting no further stimulus is on the horizon. The policy decision is expected around 0230-0330 GMT.

But data released early on Friday showed Japan’s annual core consumer inflation slowed for a second straight month in September, adding to evidence the BOJ is likely to miss its price goal. Wall Street surged late in the session on Thursday, after data showed surprisingly strong third-quarter U.S. economic growth as the trade gap narrowed. But domestic demand slipped, hinting at some loss of momentum.

The data came a day after the U.S. Federal Reserve surprised markets with an optimistic assessment of the U.S. economy when it announced the end of its monthly bond buying stimulus program. MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.5 percent, on track for weekly and monthly gains of more than 2 percent, while Japan’s Nikkei stock average rallied 1.7 percent.

Reuters

Nikkei Leads Asian Equities Higher

Asian stocks rose on the final trading day of the week following positive U.S. data overnight, with focus on developments in Japan.

U.S. stocks jumped on Thursday with the Dow leading gains by over 1 percent following strong data releases. Third-quarter gross-domestic product (GDP) rose 3.5 percent, beating expectations, while a separate report showed that the underlying trend for first time weekly jobless claims is at its lowest level since 2000.

The Bank of Japan holds a one-day policy review later today. While no action is expected, investors will pay attention to the bank’s semi-annual outlook report, due around 3pm local time, for new long-term economic forecasts. Governor Kuroda is expected to hold a briefing 30 minutes later.

CNBC

USD/JPY Near 109.40 on Report GPIF to Boost Foreign Securities

The yen traded near a six-year low against the dollar after a media report spurred speculation the world’s biggest pool of retirement savings will increase its holdings of securities outside Japan.

The nation’s $1.2 trillion Government Pension Investment Fund will boost foreign investments to 40 percent of its holdings from 23 percent, the Nikkei newspaper said. That’s higher than the 29 percent forecast in a Bloomberg News survey of analysts. The dollar touched a three-week high against its major counterparts yesterday as the U.S. economy expanded more than forecast in the third quarter.

“The total allocation to foreign stocks and bonds would be about 40 percent of the total, which is a great deal higher than the market has been expecting.” said Yujiro Goto, a currency strategist in London at Nomura Holdings Inc. “We’ll have to wait to see if the Nikkei report is true, but for now the market has taken it as a cue to sell the yen.”

Bloomberg

Concerns Emerge Over Fed Exit

The head of Denmark’s biggest pension fund says his main concern now is how to ride out what may turn into a simultaneous slump across asset classes as central bank liquidity is withdrawn.

“My concern is how the underlying assets perform,” Carsten Stendevad, who oversees $113 billion as chief executive officer of ATP, said yesterday in a phone interview. “The historical risk diversification has to some extent been suspended because central bank liquidity has inflated asset prices. That made all assets rise simultaneously. Now, they may all deflate simultaneously.”

The U.S. Federal Reserve confirmed this week it will end its asset-purchase program amid signs the economy is strengthening. The news sent U.S. stocks and bonds lower while gold prices headed for the biggest drop in three weeks. The main challenge for investors is working out how to hedge against losses as traditional risk models provide little help in navigating the Fed’s exit, Stendevad said.

Bloomberg

Fewer Americans Filing for Unemployment Benefits

Fewer Americans filed applications for unemployment benefits over the past month than at any time in more than 14 years, a sign the strengthening U.S. economy is buoying the labor market.

The four-week average of jobless claims, a less-volatile measure than the weekly figure, fell to 281,000 in the period ended Oct. 25, the lowest since May 2000, from 281,250 the week before, a Labor Department report showed today in Washington. Compared with the prior week, applications for benefits rose by 3,000 to 287,000.

Rising demand is prompting employers to hold the line on dismissals, laying the ground for faster hiring and wage growth. Better employment prospects are lifting consumers’ moods, making it more likely that households will increase spending.

Bloomberg

German Bonds Increase on Inflation Slowing

Germany’s government bonds rose for the first time in three days as consumer prices in Europe’s largest economy unexpectedly slowed in October, boosting demand for the euro area’s benchmark fixed-income sovereign debt.

Greece’s securities tumbled, with 10-year yields jumping the most in two weeks, as Minister of Administrative Reform Kyriakos Mitsotakis said investors face more volatility. Italy’s bonds advanced after the nation sold five-year debt at the highest average yield since June. Securities from France to Finland also rose.

“Germany is sliding into deflation,” said Alessandro Giansanti, a senior rates strategist at ING Groep NV in Amsterdam. “That would have very negative consequences for the whole euro zone, so that’s bullish for bunds. There are political risks due to new elections coming in Greece. That’s quite enough to keep investors worried.”

Bloomberg

U.S. GDP Raises Spirits

Unlike the seventh game of the World Series, the debate over the economy’s strength sometimes seems like a playoff competition that goes on forever between skeptics and believers. But on Thursday, the boosters won at least a temporary victory with a government report that estimated the nation’s economic output rose at a healthy 3.5 percent annual rate in the third quarter.

After an even faster pace of growth in the spring, the higher-than-expected advance in gross domestic product — a measure of all the goods and services produced in the United States — was driven by gains across the board, bolstered by an unusual burst of military spending and a more favorable trade balance.

“This is the strongest six-month interval we’ve had in 10 years,” said Carl R. Tannenbaum, chief economist at the Northern Trust Company. “The pace of the expansion has clearly increased.”

NY Times

Brazil Central Bank Issues Rate Hike After Election

Brazil’s central bank raised interest rates on Wednesday, surprising investors with a move that signals President Dilma Rousseff could make more market-friendly policy changes after her narrow re-election victory on Sunday.

In a divided vote, the central bank’s board decided to raise its benchmark Selic rate by 25 basis points to 11.25 percent. All 43 economists surveyed in a Reuters poll this week expected the bank to keep the Selic at 11 percent.

With the hotly contested presidential race over, the central bank moved swiftly to anchor inflation expectations at a time when markets are doubtful Rousseff is willing to overhaul her policies to regain the trust of investors.

The bank said the balance of inflation risks has become less favorable since its last rate-setting meeting in early September due to more intense price increases.

“In light of that, the committee considered it appropriate to adjust monetary conditions in order to guarantee, at a lower cost, the prevalence of a more benign inflation outlook in 2015 and 2016,” the bank said in its statement.

via CNBC

HSBC Points to Australia as Becoming Top LNG Exporter by 2018

The bank said the balance of inflation risks has become less favorable since its last rate-setting meeting in early September due to more intense price increases.

via CNBC

Indian Gold Imports Drop After September Surge

Gold imports by India, the world’s second-biggest consumer, are poised to plunge this month from September when festival demand fueled a more than four-fold jump in shipments, a jewelers’ group said.

Overseas purchases probably fell to 50 metric tons to 60 tons this month from 95 tons in September, said Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation, which represents 300,000 jewelers and dealers.

Demand in India, which represented 25 percent of global consumption in 2013, fell 34 percent in the first half after the government curbed imports to control a widening current-account deficit and a decline in the currency. Sales of jewelry, coins and bars rose in the run up to Diwali festival on Oct. 23 and demand will now be driven by the wedding season that runs through May, Bamalwa said.

“The wedding season demand will start coming in 10 days as there are a lot of marriages scheduled at the end of November,” Bamalwa said by phone from Kolkata. “The jump last month was because jewelers were preparing for demand during Diwali. Now that’s is over.”

Buying and gifting of gold is considered auspicious during festivals that run from August to October and the wedding season. A drop in prices boosted sales during Diwali and demand has been subdued since then, Bamalwa said.

via Bloomberg

Gold Drops Below $1,200 after FOMC

Gold fell below $1,200 an ounce as a government report showed that the U.S. economy expanded more than forecast, damping demand for the metal as an alternative investment. Silver tumbled to a 55-month low.

Gross domestic product grew at a 3.5 percent annualized rate in the third quarter, compared with a median forecast for a 3 percent advance by economists in a Bloomberg survey, data showed today. Gold fell to a three-week low, a day after the Federal Reserve announced an end to monthly debt purchases to bolster the economy.

Global holdings in exchange-traded products backed by gold have dropped to the lowest in five years. On Oct. 6, gold touched $1,183.30, the lowest this year. Fewer Americans filed applications for unemployment benefits over the past month than at any time in 14 years, government figures showed today.

“Gold dipped further on the stronger-than-expected GDP print and weekly claims” for jobless benefits, Tai Wong, the director of commodity product trading at BMO Capital Markets Corp. in New York, said in a telephone interview. “The market was already under pressure as the Fed ended the QE, and there are no worries about inflation.”

Gold futures for December delivery fell 1.9 percent to $1,202 at 10:39 a.m. on the Comex in New York. Earlier, the price touched $1,199.30, the lowest for a most-active contract since Oct. 6. Aggregate trading was 52 percent above the average for the past 100 days for this time, according to data compiled by Bloomberg.

via Bloomberg

Oil Drops After FOMC and Strong Inventories

West Texas Intermediate retreated from a one-week high after the Federal Reserve ended its asset-purchase program and production rose to the highest in more than three decades. Brent slid in London.

Futures fell as much as 1.2 percent in New York. The dollar strengthened a second day against the euro after the Fed’s announcement, undermining the appeal of commodities priced in the U.S. currency for protecting against inflation. U.S. crude stockpiles gained for a fourth week as production increased to 8.97 million barrels a day, the most since January 1983, according to the Energy Information Administration.

“It’s another negative factor for the oil market and for commodities in general, coming on top of an already oversupplied oil market,” Hans van Cleef, energy economist at ABN Amro Bank NV in Amsterdam, said by phone of the Fed’s move. “When you pull money out of the market, normally the first thing you’d sell is riskier assets.”

WTI for December delivery dropped as much as 99 cents to $81.21 a barrel in electronic trading on the New York Mercantile Exchange, and was at $81.45 at 11:46 a.m. London time. The contract climbed 78 cents to $82.20 yesterday, the highest close since Oct. 21. The volume of all futures traded was about 7 percent below the 100-day average for the time of day. Prices have decreased 17 percent this year.

Brent for December settlement declined as much as 87 cents, or 1 percent, to $86.25 a barrel on the London-based ICE Futures Europe exchange. The contract rose 1.3 percent yesterday. The European benchmark crude traded at a premium of $4.96 to WTI on ICE, compared with $4.92 yesterday.

via Bloomberg

USD Rallies After End of QE

Central banks around the world are giving investors the green light to buy the dollar, pushing it to a three-week high against its major counterparts after the Federal Reserve ended its bond-purchase stimulus program.

The greenback rose for a second day versus the euro as reports showed the U.S. economy expanded more than forecast in the third quarter. The shared currency, set for its biggest annual drop since 2005, slid before a report tomorrow that analysts said will show inflation remained below the European Central Bank’s target. Brazil’s real rallied after an unexpected rate increase, while Norway’s krone reached the lowest since 2009.

“The combination of the market’s reaction to the Fed policy announcement and now the data is supportive of a shift of focus from the end of quantitative easing to the next policy move,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., said in a phone interview. “The dollar has had a good 24 hours.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, reached 1,073.85, the strongest since Oct. 6, before trading little changed at 1,068.91 at 10:35 a.m. New York time. It gained 0.6 percent yesterday.

The dollar added 0.1 percent to $1.2616 per euro after appreciating to $1.2548, also the strongest level since Oct. 6. The greenback traded at 108.89 yen after touching 109.36, the highest since Oct. 6. Japan’s currency rose 0.1 percent to 137.39 per euro.

via Bloomberg

Japan’s Cabinet to Create a Supplementary Budget to Stimulate Economy

Prime Minister Shinzo Abe is likely to instruct Cabinet ministers concerned to compile a supplementary budget for fiscal 2014 containing pump-priming measures as early as mid-November to prop up the economy, government sources said.

The Japanese economy has been plagued by a prolonged downturn in consumer spending since the consumption tax was raised from 5 percent to 8 percent in April. Therefore the government sees the need to shore up the economy. The government is considering specific measures such as cash stipends for low-income earners and financial aid for business operators hit by rising fuel prices. Prime Minister Abe is to decide by the end of this year whether to raise the consumption tax to 10 percent from October 2015 as originally scheduled, but he is keen to draw public attention to his efforts to stimulate the economy beforehand.

The Finance Ministry, which attaches importance to fiscal soundness, wants to shore up the economy in such a way as to lay the ground for another hike in the consumption tax. But some officials close to Abe and in the ruling camp hold the view that the consumption tax hike should be postponed. Therefore, Prime Minister Abe is likely to decide carefully whether to raise the sales tax. If Abe were to decide to raise the tax, the government would consider setting aside such funds as “reserves for an economic stimulus package” in the budget for fiscal 2015 that could be used flexibly in times of economic stagnation.

via Mainichi

US GDP Grows 3.5% in Q3

The US economy grew at an annual rate of 3.5% in the July-September quarter, the Commerce Department has said.

That was better than the 3% pace that economists had been expecting and follows the 4.6% growth rate recorded in the April-June quarter.

Strong export growth and higher government spending helped to boost growth in the third quarter.

In a sign of confidence in the US recovery, on Wednesday the Federal Reserve ended its stimulus scheme.

The fall in the unemployment rate to a six-year low has helped to boost that confidence.

“Today’s number represents a return to a healthy-looking trend. The most recent IMF forecasts suggest the US economy will grow 3.1% next year and 3.0% in 2016, and these could be revised further upwards in the coming months,” said Ben Brettell, senior economist at Hargreaves Lansdown stockbrokers.

The report was the first of three estimates of gross domestic product, so the figure could be revised up or down, over the coming months.

Growth was lifted in the third quarter by a sharp increase in government spending, which itself was boosted by a surge in defence expenditure.

via BBC

German Unemployment Falls in October

The US economy grew at an annual rate of 3.5% in the July-September quarter, the Commerce Department has said.

That was better than the 3% pace that economists had been expecting and follows the 4.6% growth rate recorded in the April-June quarter.

Strong export growth and higher government spending helped to boost growth in the third quarter.

In a sign of confidence in the US recovery, on Wednesday the Federal Reserve ended its stimulus scheme.

The fall in the unemployment rate to a six-year low has helped to boost that confidence.

The report was the first of three estimates of gross domestic product, so the figure could be revised up or down, over the coming months.

Growth was lifted in the third quarter by a sharp increase in government spending, which itself was boosted by a surge in defence expenditure.

via BBC

Goldman Bullish on Asian Stocks

Stock markets across Asia may have taken the recent market rout on the chin, but that’s left them well-poised for a solid year-end rally, Goldman Sachs said.

“Asian regional stocks have recovered less of their recent decline and appear poised to make up some of this disparity,” Goldman said in a note Wednesday.

While the S&P 500 index has recovered 95 percent of its recent decline, the Stoxx Europe 600 has regained 64 percent and the Topix 63 percent, the MSCI Asia-Pacific ex-Japan Index, or MXAPJ, has only regained 32 percent, Goldman noted, adding that the Asian index fell 10 percent from its year-to-date high, set Sept. 3, to its Oct. 16 low, before recovering just 3 percent.

Goldman maintains its year-end target of 500 for the MXAPJ, compared with around 482 currently.

via CNBC

Swiss to Vote in Gold Referendum Late November

A referendum that would force the Swiss central bank to hold a fifth of its assets in gold could rock foreign exchange markets, analysts have warned.

On the 30th November, voters in Switzerland will head to the polls to decide whether the Swiss National Bank (SNB) should boost its gold holdings and refrain from any further selling of Swiss gold.

The referendum, proposed by the ultra-conservative Swiss People’s party, will also require the bank to repatriate all Swiss gold holdings currently held outside of Switzerland if passed.

The ban on selling gold would go into effect immediately and the SNB would have five years to reach the 20 percent requirement.
Foreign exchange markets are likely to be most affected by the move. Three years ago the SNB pledged to ensure the country’s competitiveness by keeping the Swiss Franc at a set level at 1.20 francs per euro. Any move to bolster gold holdings could put this “floor” under pressure and will likely trigger further euro weakness – which would make Swiss exports more expensive.

via CNBC

US Fed Revises Risk Management Policy

The U.S. Federal Reserve said on Tuesday it has revised its policy which sets the risk management standards for the country’s largest clearing, payment and settlement firms.

The policy change brings the Fed’s standards in line with international rules for clearing agencies, such as rules on governance, credit risk and collateral.

The 2010 Dodd-Frank Wall Street reform law heightened the importance of clearing and settlement operations run by companies such as CME Group and Intercontinental Exchange.

The law requires over-the-counter derivatives to be centrally cleared, a process in which a clearinghouse stands in between two parties to guarantee trades.

via Reuters

Italy Puts Rating Agencies on Trial

An Italian court indicted officials from ratings agencies Standard & Poor’s and Fitch on Tuesday over accusations of market manipulation related to cuts to Italy’s sovereign debt ratings during the euro zone debt crisis in 2011 and 2012.

A court in the small southern city of Trani also indicted the two companies for their legal liability in the case through the actions of their employees.

The trial is due to start on Feb. 4, 2015.

The judge ordered five current and former employees of Standard & Poor’s and one from Fitch to stand trial over accusations that sensitive reports were released during trading hours, causing heavy losses on stock and bond markets.

S&P said in a statement the allegations were “completely unfounded and unsupported by any evidence”.

Fitch added in a separate note that it disagreed with the judge’s decision and was confident that the agency and its officials would be exonerated as the proceedings continue.

The investigation initially also included the third major ratings agency, Moody’s, but prosecutors later dropped the case against it.

via CNBC

USD/JPY – Improving Dollar Hits 109

USD/JPY has moved upwards on Thursday, as the US dollar has posted broad gains following the FOMC policy statement on Wednesday. In the European session, the pair is trading just above the 109 line. On the release front, there are two major US events -GDP and Unemployment Claims. Both indicators are expected to post strong figures, so we could see the dollar post gains in the North American session. As well, Federal Reserve Chair Janet Yellen will address an event in Washington. In Japan, today’s highlights are Tokyo CPI and Household Spending.

Japanese data continues to impress this week. Preliminary Industrial Production sparkled in September, with a gain of 2.7%, compared to a reading of -1.5% a month earlier. The estimate stood at 2.3%. Earlier in the week, Japanese Retail Sales was unexpectedly strong in September, climbing 2.3%, its strongest gain since March and well above the estimate of 0.9%. There has been concern about consumer spending in Japan after the sales tax was raised in April from 5% to 8%. The government plans to increase the tax to 10%, but is wary about hurting the economy, which has been marked by modest growth. The Household Spending report later on Thursday will be an important gauge of consumer spending, a key engine of economic growth.

US durable goods looked dismal in September. Core Durable Goods Orders dropped 0.2%, its second decline in three months. This was well short of the estimate of 0.5%. Durable Goods Orders followed suit with a decline of -1.3%. This was a second straight decline, and missed the estimate of 0.4%. There was much better news from CB Consumer Confidence, as the indicator climbed to 94.5 points, up sharply from 86.0 points. This easily beat the estimate of 87.4 and marked a 7-year high. An increase in consumer confidence usually translates into stronger consumer spending, which is a critical component for economic growth.

USD/JPY for Thursday, October 30, 2014

USD/JPY October 30 at 11:25 GMT

USD/JPY 109.10 H: 109.31 L: 108.84

USD/JPY Technical

106.85

107.68

108.58

109.82

110.68

112.94

USD/JPY posted gains in the Asian session. The pair is choppy in the European session.

109.82 is the next resistance line.

108.58 has reverted to a support line after the yen lost ground on Wednesday. 107.68 is next.

Current range: 108.58 to 109.82

Further levels in both directions:

Below: 108.58, 107.68, 106.85, 105.44 and 104.

Above: 109.82, 110.68, 112.24 and 113.68

OANDA’s Open Positions Ratio

USD/JPY ratio is pointing to gains in short positions on Thursday, continuing the direction seen a day earlier. This is not consistent with the pair’s movement, as the dollar continues to post gains. The ratio has a majority of long positions, indicative of trader bias towards the dollar moving higher.

USD/JPY Fundamentals

12:30 US Advance GDP. Estimate 3.1%.

12:30 US Unemployment Claims. Estimate 284K.

14:30 US Advance GDP Price Index. Estimate 2.0%.

13:00 US Federal Reserve Chair Janet Yellen Speaks.

14:30 US Natural Gas Storage. Estimate 83B.

23:30 Japanese Household Spending. Estimate -4.0%.

23:30 Japanese Tokyo Core CPI. Estimate 2.5%.

23:30 Japanese National Core CPI. Estimate 3.0%.

23:30 Japanese Unemployment Rate. Estimate 3.6%.

*Key releases are highlighted in bold

*All release times are GMT

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