Dollar Gains On Euro As Debt Woes Linger

(RTTNews) - The dollar rallied versus the euro on Friday amid mounting concerns that Europe faces more hurdles to overcoming its economic malaise.

The prospects for euro zone growth took a hit this morning with the release of data showing that euro zone inflation rose well above levels targeted by the European Central Bank.

Euro zone annual inflation increased unexpectedly in September, flash estimate from Eurostat showed Friday.

Annual inflation rose to 3 percent from 2.5 percent in August. The ECB may therefore think long and hard before cutting interest rates in support of the region's sluggish economy. The ECB targets 2 percent annual inflation.

Progress was made toward aid for Greece this week when German lawmakers voted to expand their participation in a rescue fund. However, other euro zone members must go along with the plan.

The dollar rose to $1.3420 versus the euro, edging near Monday's 8-month high of $1.3361. The buck also gained on the yen, breaking through Y77 to a two-week high.

The buck was weaker versus the sterling, easing to $1.5650.

Business activity in the Chicago area unexpectedly expanded at an accelerated rate in the month of September, according to a report released by the Institute for Supply Management - Chicago on Friday.

The ISM Chicago said its business barometer jumped to 60.4 in September from 56.5 in August, with a reading above 50 indicating growth.

Personal income showed a modest decrease in the month of August, according to a report released by the Commerce Department on Friday, although the report also showed a continued increase in personal spending.

The report showed that personal income edged down by 0.1 percent in August following a downwardly revised increase of 0.1 percent in July. Economists had expected income to increase by 0.1 percent compared to the 0.3 percent growth originally reported for the previous month

G20 trying to reassure markets; EU banks face further problems

G20 finance ministers and central bankers issued a joint statement yesterday in which they assure they will “take all necessary actions to preserve the stability of banking systems and financial markets as required.” They announced that EU officials will increase efforts to avert contagion of the debt crisis in the Eurozone by making the EFSF more flexible and effective.

The announcement followed yesterday's fall of markets to their lowest level in 13 months. On Friday European stocks opened firmer with Eurostoxx 50 Index advancing 0.5%, with the German DAX Index another 0.5% up, and the French CAC index trading practically flat. In the UK, the FTSE Index edged up 0.2% one hour after the opening bell.

The G20 official meeting will take place this weekend in Washington, on the occasion of the semi-annual IMF and World Bank conferences. Bill Hubard, Chief Economist at Markets.com, suggests that it is necessary for the G20 to find a way to coordinate efforts on a global scale in order to fight the crisis instead of issuing general statements: “Imagine if the next Fed meeting, due for November 2nd, delivered QEIII, whilst the BoE also simultaneously embarked on round 2 of their own QE, whilst the ECB, due to meet on the November 3rd, could add a helpful 50 bps of interest rate cuts at Mario Draghi’s first meeting Imagine how much more of an impact on market confidence there would be if these policies were combined, and I-F the BRIC countries delivered some rate cuts of their own? Co-ordinated action would also avoid much of the USD weakness that would accompany a unilateral policy of ‘only’ US QE.”

The ECB has also announced its will to step in, in case of further deterioration of economic activity next month. Governing Council member Luc Coene said in Washington that the central bank is considering to introduce again longer-term bank loans with maturities of 12 months or even longer. Also the IMF head Christine Lagarde expressed her increasing preoccupation with the worsening economic condition: "The current economic situation is entering a dangerous phase. This heavy debt of sovereigns, households and banks represents risks that could actually suffocate the recovery."

Recapitalization and downgrades for European banks

The EU is planning another move aimed at reassuring markets about the resistance of the European banking sector. The EU internal markets commissioner, Michel Barnier said yesterday in an interview for the Le Figaro that 16 European banks which barely passed last summer's stress tests will have to undergo recapitalization. The list includes seven banks from Spain, two from Greece, two from Portugal, two from Germany and one each from Italy, Cyprus and Slovenia. Despite recent problems, financial institutions from France and Belgium with considerable exposure to Greek debt did not appear on Barnier's list.

Greek financial entities themselves have been downgraded today by Moody's which cut their rating by two notches. Six of them were downgraded to Caa2 from B3 and two were downgraded to B3 from B1. The ratings of all the banks in question carry a negative outlook.

The most pressing issues that are currently derailing global markets can be found below:

• FOMC provides no further stimulus to the market after announcing “Operation Twist”, while warning that the US economy faces "significant downside risks".

• The ECB published a study Thursday co-authored by Executive Board member Juergen Stark, emphasizing the gravity of the debt crisis in Europe which in his opinion might lead to the Eurozone breakup

• IMF lowers economic outlook and sees danger ahead, urging the rapid recapitalization of European banks.On Thursday, Christine Lagarde, head of the International Monetary Fund, said that the economic situation was entering a "dangerous place".

• Uncertainty over Greece receiving the next bailout funds to pay off its debt. The market has already priced in that is only a matter of WHEN not IF about Greece defaulting on its debt.

• Fears of contagion risk for European peripheral economies and banks if a Greek default is not conducted in a relatively orderly and controlled manner. The ECB continues to buy Spanish and Italian bonds to prevent higher premiums.

• Downgrades all over again. Several Italian banks were downgraded yesterday by S&P, which follows those of the three largest American banks, and also the country of Italy earlier on the week.

• BRIC nations continue to send mixed messages over their intentions to help the Eurozone, either directly or through the IMF.

EUR/USD, further declines likely

 EURUSD broke below the 1.3496 support area on Thursday to dip to as low as 1.3384 as recession alarm bells rang across the globe, spooking investors and fueling demand for the safe-haven USD.

The latest monthly manufacturing readings in the eurozone, the U.K. and China were all weaker than they had been expected, and global equity markets are now in the red, stimulating risk-averse trading conditions in the global Forex market. At the time of writing, the euro is hovering in the 1.3535 price zone, up from 1.3459 as early G20 statements signal joint cooperation on the EZ debt crisis. However, market participants expect the greenback to play the role of a safe-haven currency until the EZ crisis is resolved.

From a technical perspective, “Further decline would likely be seen in next several days, and next target would be at 1.3200 area,” says Franco Shao, Chief Analyst at ForexCycle.com. “Resistance is at 1.3600, only break above this level could indicate that a cycle bottom has been formed at 1.3386 on 4-hour chart, and lengthier consolidation of downtrend from 1.4548 is underway, then further rally could be seen to 1.3800 zone.” 

Euro / Australian Dollar at 200 Average-Focus Still Higher

Australian dollar setups have played out and moves are expected to extend. 

Euro / Australian Dollar

DailyBars

Prepared by Jamie Saettele, CMT

The EURAUD has traded in a 1400 pip range since January with the latest advance (from the July low) and decline (from the August high) stopping just short of the respective range extremes. This slight tightening of the range hints that a triangle may be underway. If so, then price will work higher over the next few weeks in order to complete wave E of the triangle before reversing lower. As such, I am bullish against 12987. While there may some resistance at 13645, a sharper advance upwards of 13872 is favored.

Australian Dollar / Japanese Yen

Daily Bars

Prepared by Jamie Saettele, CMT

I wrote Friday that “the pattern is now quite clear with the current rally composing wave iv of an impulse from the September high. Strength could extend into channel resistance near 8000 early next week but I expect weakness in a 5th wave towards 7750.” Price has plummeted and is nearing the August low of 7652. A break there could be the beginning of a move to the March low near 7400. There will be rallies along the way and beware of interventions and/or rumors of interventions. Short term resistance is 7715/45.

Euro / British Pound

Daily Bars

Prepared by Jamie Saettele, CMT

The EURGBP plummeted into trendline support on last week before reversing sharply. Price has since consolidated and the next leg higher maybe underway. Near term focus is on the resistance line that extends off of the July and August highs. A break above there would shift focus to the 8/31 high of 8884.

Euro / Canadian Dollar

WeeklyBars

Prepared by Jamie Saettele, CMT

Near term, a EURCAD drop below 13406 may actually complete a 3 wave correction from the June high (flat). Bolstering a bullish setup is the outside week this week (and perhaps a bullish engulfing pattern – must wait till Friday though). Focus now shifts higher towards 13879.

Euro / Japanese Yen

Weekly Bars

Prepared by Jamie Saettele, CMT

I’m zooming out a bit to show the break of the 2010 low. In fact, the EURJPY is at its lowest price since June 2001. I wrote last week that “recent strength stalled at the 38.2% retracement of the decline from 11192. More importantly, this is the same level that produced the January and March lows. As such, there is a bearish opportunity against 10700.” Bear’s focus is now on the line that extends off of the 2009 and 2010 lows near parity (100).

British Pound / Japanese Yen

Weekly Bars

Prepared by Jamie Saettele, CMT

The GBPJPY has dropped below the 2009 low of 11880 and additional downside could test the former resistance line (throughout 2009 and 2010) near 11000 at the end of this month! Those playing the breakout should keep risk to 11984. Short term resistance comes in at 11900.

Canadian Dollar / Japanese Yen

WeeklyBars

Prepared by Jamie Saettele, CMT

I wrote Friday that “as is the case with ‘risk trends’ in general, there is no compelling evidence to suggest that this is the bottom so favor the downside against the September 1 high of 7911. Measured objectives are 7345 and 7169.” Continue to look lower but also focus on the sharp downward sloping trendline (that extends off of the June and August lows). Also worth mentioning is the objective from extending the width of recent consolidation from the break. This method yields a 7450 objective.

GBP/USD trims losses ahead of Fed

FXstreet.com (Córdoba) - After bottoming out at an 8-month low of 1.5577, the Pound bounced strongly and managed to cut losses against the Greenback, as this latter loses momentum ahead of the FOMC statement.

GBP/USD has risen over 90 pips from lows, reaching a session high of 1.5670 so far, and it was last at 1.5660 where it is still 0.45% below its opening price.

The British currency came under pressure on Wednesday after the BoE minutes showed most members felt it was increasingly likely more asset purchases would be warranted at some point

"Technical studies indicate that supports are seen at 1.5579/33 and then at 1.5475", said the Talking-Forex.com team. On the other hand, resistance levels are seen at 1.5680, 1.5768 and then at the 10DMA line at 1.5797.

Westpac Favors Buying USD/Asia On

Westpac Favors Buying USD/Asia On Dips Ahead Of FOMC Announcement

09/21/2011 - 05:57:00 (RTTNews)

(RTTNews) - Analysts at Westpac noted on Wednesday that the market will be reluctant to get aggressively long USD/Asia ahead of tonight's Federal Open Market Committee announcement. With little hopes of the FOMC hitting the USD sentiment, the firm prefers adopting the strategy of buying USD/Asia on dips.

The research group said that CHF and JPY were under the scanner today on potential intervention fears. While noting that the Swiss National Bank have not announced a new policy to justify its earlier move to curb CHF appreciation, the firm noted that speculation of a JPY intervention seemed to be a false alarm.

AUD/USD failed to break above its New York session's high of 1.0300 and the EUR/USD traded in a quiet range of 1.3679 and 1.3724. NZD/USD was very subdued, trading within the 0.8209-0.8241 range. Although USD/JPY rose to 76.86 from 76.11, easing fears of intervention kept the pair stable at 76.35. USD/CHF steadied at 0.8940 while GBP/USD eased to 1.5725 ahead of the Bank of England minutes.

Most of the major USD/Asia pairs have traded within a tight range, although regional equity markets brushed off Wall Street's late slide. The 1-month USD/KRW traded between 1144 and 1153, while USD/SGD moved in a range of 1.2585 and 1.2640. The 1-month USD/MYR Non-Deliverable Forward traded back through 3.1200 before some buying interest emerged. IDR and PHP have posted modest gains against the USD but well within recent ranges.

With a lower than expected USD/CNY fix, which is coming 100 points down, the 12-month USD/CNY Non Deliverable Forward hovered around the 6.3350 level. The firm is expecting further downside pressure on the USD/CNY fix ahead of this week's G20 meeting. Although the firm prefers holding CNY, it recommends waiting for a rally up towards 6.3500 before entering into fresh short positions.

EURUSD: Remain Short into FOMC

I initially sold EURUSD at 1.4328. Prices are testing the bottom of a falling channel connecting major lows since mid-April and I expect directional momentum to be lackluster until the outcome of Wednesday’s FOMC announcement, at which point selling should resume as the Fed disappoints by shying away from a QE3 program. I will remain short, aiming for a soft objective at 1.3416. The stop-loss is now at the breakeven rate (1.4328).

International News: Portugal May Need Second Bailout

Portugal May Need Second Bailout If Greece Defaults: PM 09/21/2011 - 03:21:00 (RTTNews) (RTTNews) - Portugal is set to face serious consequences if Greece defaults on its debt and may need a second round of aid, Prime Minister Pedro Passos Coelho said in a television interview on Tuesday. Speaking to RTP television, Passos Coelho said he is not ruling out the need for a second bailout for Portugal in the event that something severe happens in Greece. "If anything very serious happens in Greece, we cannot exclude that possibility," he said. He stressed on the need for his country to meet, and also exceed, the targets set in the financial bailout plan. Portugal is trying hard to distinguish itself from Greece amid increasing concerns over the latter defaulting on its debt. Passos Coelho said if something happens in Greece, then it is important that those who can help Portugal can do so convinced that what happened in Greece will not happen in his country. For comments and feedback: contact editorial@rttnews.com Copyright(c) 2011 RTTNews.com. All Rights Reserved

Dollar: How will the Greenback React to the Fed Decision?

We have finally come to the pivotal Federal Open Market Committee (FOMC) rate decision. Many traders will be looking at this particular event only for its immediate market-moving implications; but those that look too closely will miss the bigger picture of what this announcement could mean for the dollar and broader capital markets beyond the volatility impact. 

• Dollar: How will the Greenback React to the Fed Decision?
• Euro Takes a Fundamental Hammering but Price Still Holding
• British Pound Traders Look to BoE Minutes for Rate Outlook
• Swiss Franc Dives on Speculation SNB Moving EURCHF Floor to 1.25
• Japanese Yen Sees Volatility Explode in Asian Session – Intervention?
• Australian Dollar Traders Refuse to Absorb RBA’s Rate Commentary
• Gold Ready for a Breakout, Technically and Fundamentally

Dollar: How will the Greenback React to the Fed Decision?

We have finally come to the pivotal Federal Open Market Committee (FOMC) rate decision. Many traders will be looking at this particular event only for its immediate market-moving implications; but those that look too closely will miss the bigger picture of what this announcement could mean for the dollar and broader capital markets beyond the volatility impact. To understand what kind of influence this policy decision can carry; we need to first understand where the markets are now. More than just the past few days, risk appetite trends have found a meaningful floor that seems to defy the developments we have seen in growth forecasts, the interest rate outlook and financial market functioning. What can stall a pair like EURUSD from extended its tumble while the Euro-area crisis seems to move further and further beyond the point of no return? US stimulus. Similar to the way the market treats the announcement of Chinese investment in a company or country, ECB government bond purchases or the SNB placing a floor underneath EURCHF; some investors still think that a Fed bailout is a cure all – or at least a rally point.

Where does this believe come from? When we look back to the reaction capital market’s reaction to the first round of stimulus (TARP, TALF, etc) and its second iteration (QE2); we saw a clear, positive reaction from financial assets. The economic implications of this support was a little more complicated; but the possibility that it was helping the economy find a firmer footing was readily backed the reality that the central bank was essentially lifting asset prices to the benefit of traders was undeniable. And so, we come to the announcement after a special two-day meeting in which officials have said they would be discussing options to further support the economy and markets. There are three general scenarios in how this event could reasonable fall: the Fed exceeds, meets or falls short of expectations.

For scenarios, the least likely outcome (but therefore also the most market-moving) would be for the central bank to do nothing – no additional purchases and no balance sheet restructuring. This would offer relief for dollar traders that the central bank is actively devaluing the dollar and would more importantly open the door to the risk aversion that has clearly built up just below the surface (thereby feeding the risk aversion appeal of the greenback). Slightly further up the probability scale is the scenario where the Fed announces an outright purchases program akin to the previous $600 billion Treasury purchase (essentially a QE3). This is unlikely because the positive effects of QE2 are hard to measure in growth or markets. The most likely approach is what pundits are calling ‘Operation Twist’. This is changing the holdings on the balance sheet by selling shorter-term securities and swapping them out for longer-dated assets. This can have many variations to it; so it is therefore far from an easy-read scenario. And, ultimately, it would do little to boost speculative interests. So risk trends could still falter after a careless rally.

Related:Discuss the Dollar in the DailyFX Forum, John’s Video:The Fed Decision, Euro Crisis and Rate Outlook Scenarios for EURUSD

Euro Takes a Fundamental Hammering but Price Still Holding

One of the greatest risks should the market be disappointed with the global implications of the Fed rate decision is that there will be no ‘risk on’ distraction to draw the attention away from Europe’s burgeoning crisis. A little late to the game, Fitch said that it was likely that Greece would default; but it would not leave the Euro Zone. This is the most imminent and pervasive threat to region because it is difficult to determine its full effect on the currency and union. However, we should also watch the spread to the core in the wake of Italy’s downgrade by Standard & Poor’s. Another facet of the currency’s troubles: the possibility of an interest rate cut. The market is currently pricing in a 25bp cut at the next meeting.

British Pound: Will the BoE Finally be Proactive with Building Trouble?

Speaking of interest rate expectations, the Bank of England is hanging in purgatory; but we are seeing greater scope for the policy authority to finally capitulate and follow its global brethren. With the UK economy slowing alongside its major trade partners, we will see the negative impact that austerity can leverage. Will the central bank be sensitive to this fact and politicians calls for further stimulus to ease the fiscal clampdown? The minutes are the next read we will have on their view; and after their Quarterly Bulletin, it seems they are warming up to action.

Swiss Franc Dives on Speculation SNB Moving EURCHF Floor to 1.25

Speculation was running in second gear Tuesday with the market circulating the rumor that the SNB was looking to boost its floor on EURCHF from 1.20 to 1.25. They have not confirmed this; but from a strategic perspective, it is reasonable. If the central bank left the pair to its own devices, it would likely hold to 1.20 as long as the Euro crisis prevailed (a long time). So active encouragement could be a helpful step.

Japanese Yen Sees Volatility Explode in Asian Session – Intervention?

Did the Japanese central bank or government intervene in the FX market this morning? Through the early Asian session hours, USDJPY was building speed as it dropped below 76.35 when a sudden 55-point surge occurred. These are certainly thin markets; so sharp moves are possible; but this is most likely intervention of some sort. That said, it didn’t have lasting effect aside from killing momentum in the decline.

Australian Dollar Traders Refuse to Absorb RBA’s Rate Commentary

In the RBA’s minutes, the policy authority suggested it was “well placed” to responds to building global risks; but most remarkably, they suggested that current expectations for aggressive cuts were not likely accurate. Signals to the market don’t come any clearer than that. And yet, the market is still pricing in approximately 140 basis points of cuts over 12 months and a 60 percent probability of a 25 bps cut in October.

Gold Ready for a Breakout, Technically and Fundamentally

Gold reversed its unfavorable fortunes at the start of the week with Tuesday’s rally. However, this advance doesn’t bring us to any new trends. Realistically, it is volatility within congestion and uncertainty. We are coming to the conflict of US stimulus holdout versus European crisis; and technicals are showing the same indecision. A breakout over the next 24 hours is highly likely.

For Real Time Forex News, visit: http://www.dailyfx.com/real_time_news/

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

Next 24 Hours

GMT	Currency	Release	Survey	Previous	Comments
0:30	AUD	Westpac Leading Index (MoM) (JUL)		0.1%	Index may return to negative on outlook
1:00	AUD	Consumer Inflation Expectation (SEP)		2.7%	Despite inflation, RBA remains dovish
1:00	AUD	DEWR Internet Skilled Vacancies (MoM) (AUG)		-0.8%	Skilled vacancies may fall on economy
2:00	CNY	Conf Board China Leading Economic Index (JUL)		158.9	Leading index has been fluctuating
3:00	NZD	Credit Card Spending s.a. (MoM) (AUG)		1.0%	Credit card spending can be used as a gauge of retail sales
3:00	NZD	Credit Card Spending (YoY) (AUG)		7.3%
4:30	JPY	All Industry Activity Index (MoM) (AUG)	0.5%	2.3%	Japanese industries may slow again
7:00	CHF	Money Supply M3 (YoY) (AUG)		5.9%	Will not include intervention change
8:30	GBP	Bank of England Minutes			With 2 hawkish members withdrawing their dissent, minutes may reveal a board shifting towards additional easing
8:30	GBP	Public Finances (PSNCR) (Pounds) (AUG)	6.0B	-5.6B	Government finances expected to improve, led by borrowing and against expectations
8:30	GBP	PSNB ex Interventions (AUG)	13.0B	0.0B
8:30	GBP	Public Sector Net Borrowing (Pounds) (AUG)	11.4B	-2.0B
11:00	CAD	Consumer Price Index (AUG)		120	Canadian prices expected stable; Bank of Canada focuses on core prices. Same rate of growth may delay an eventual rate hike, though BoC eager to start raising rates
11:00	CAD	Consumer Price Index (MoM) (AUG)	0.1%	0.2%
11:00	CAD	Consumer Price Index (YoY) (AUG)	2.9%	2.7%
11:00	CAD	Bank Canada CPI Core (MoM) (AUG)	0.2%	0.2%
11:00	CAD	Bank Canada CPI Core (YoY) (AUG)	1.6%	1.6%
11:00	USD	MBA Mortgage Applications (SEP 16)		6.3%	Mortgage applications and new sales may show some improvement in housing market, though recovery unclear
14:00	USD	Existing Home Sales (AUG)	4.75M	4.67M
14:00	USD	Existing Home Sales (MoM) (AUG)		-3.50%
14:30	USD	DOE U.S. Crude Oil Inventories (SEP 16)		-6704K	Negative crude inventories indicate heavy demand, may lead a short term bounce
14:30	USD	DOE Cushing OK Crude Inventory (SEP 16)		-460K
14:30	USD	DOE U.S. Distillate Inventory (SEP 16)		1711K
14:30	USD	DOE U.S. Gasoline Inventories (SEP 16)		1940K
18:15	USD	Federal Open Market Committee Rate Decision	0.25%	0.25%	Trades will be heavily watching this data point as the Fed reported they will be discussing a possibility of additional stimulus at this meeting.
22:45	NZD	Gross Domestic Product (QoQ) (Q2)	0.5%	0.8%	New Zealand productivity expected to grow on a year-to-year basis, though leading data uncertain on Australian, Chinese slowdown
22:45	NZD	Gross Domestic Product (YoY) (Q2)	1.7%	1.4%

SUPPORT AND RESISTANCE LEVELS

CLASSIC SUPPORT AND RESISTANCE - 18:00 GMT

Currency	EUR/USD	GBP/USD	USD/JPY	USD/CHF	USD/CAD	AUD/USD	NZD/USD	EUR/JPY	GBP/JPY
Resist 2	1.4500	1.6745	86.00	0.9050	1.0275	1.0750	0.9020	113.50	146.05
Resist 1	1.4000	1.6600	81.50	0.8840	1.0000	1.0800	0.8750	110.00	140.00
Spot	1.3676	1.5725	76.41	0.8893	0.9927	1.0254	0.8231	104.51	120.16
Support 1	1.3500	1.5700	76.35	0.7800	0.9425	1.0200	0.7745	104.00	121.00
Support 2	1.2900	1.5350	75.50	Market News provided by DailyFX