IMF still too optimistic? - Market await US inflation report

Forex News and Events

IMF: Weaker global growth expected (by Yann Quelenn)

According to the IMF Head Christine Lagarde: “We are in a recovery process whose pace is decelerating”. These words underpin the uncertainty facing western countries despite emerging countries being said to be the driving forces of the global recovery. For several years now we have been told that the recovery is in progress through optimist forecasts. Yet, we remain in an era where economic forecasts are constantly revised down.

The Federal Reserve has overturned such thought by being afraid of increasing interest rates of a quarter point after seven years so called ZIRP (zero interest-rate policy). The truth is that major countries have astonishing debt, above 100% GDP in the US and around 230% in Japan. Furthermore, this does not include all the off-balance-sheet commitments. These figures may likely be considerably higher. The United States owns $18 trillion debt. A rate hike will increase their annual deficit by $45 billion a year. At this point, there is no more room left for the Federal Reserve to act. QE4 is definitely not far-off. Meanwhile, Lagarde has revised down the IMF global economic growth forecast of 3.3% for this year, which are “no longer realistic”. She added that nevertheless, we will remain above the 3% threshold. Optimism is definitely an IMF virtue.

US inflation report in focus (by Peter Rosenstreich)

This week, we anticipate additional evidence that the US labor markets are tightening further. In addition, we will also get the Feds preferred measure of inflation in PCE (published today). The net results should be a stronger USD. In regards to the labor markets, we expected strong reads supportive of inflation pressures which in turn should support the argument for a rate hike in December. The unemployment rate is expected to remain steady at 5.1% yet yearly average wages should increase 2.4%. The headline payroll number should come in solidly at 200k and private payrolls 195k. A significant portion of the pro-hike argument is based on the expectations that tighten in the labor markets will lead to wage growth and generate inflation. Finally, todays PCE core yoy is expect to rise marginally to 1.3% from 1.2% (a slight reversal of downward trend). As markets reprice the December rate hike, USD should outperform especially against EM and commodity currencies. Weak commodity prices, capital outflows and growth risks emulating from China will keep traders from renegading in long risk trades. Elsewhere in the US, personal spending and earning will remains unchanged at 0.3% and 0.4%. These numbers are a positive for the US economy, suggesting that the US consumer continues to participate in the current expansion. As for the EURUSD, we are targeting 1.0990 then 1.0800 support on renewed expectations of a US hike combined with a growing belief the ECB will be forced to ease monetary conditions in order push inflation higher.

EURGBP - Failed To Challenge Resistance at 0.7422

The Risk Today

Yann Quelenn

EUR/USD is fading. The technical structure is confirming an underlying downtrend since the near term peak at 1.1460. Stronger support can be found at 1.1017 (18/08/2015 low). Strong resistance lies at 1.1714 (24/08/2015 high). In the longer term, the symmetrical triangle from 2010-2014 favored further weakness towards parity. As a result, we view the recent sideways moves as a pause in an underlying declining trend. Key supports can be found at 1.0504 (21/03/2003 low) and 1.0000 (psychological support). We remain in a downside momentum.

GBP/USD is declining toward hourly support at 1.5136 (25/09/2015 low). Stronger support can be found at 1.4960 (23/04/2015 low). Hourly resistance can be found at 1.5659 (27/08/2015 high). In the longer term, the technical structure looks like a recovery. Strong support is given by the long-term rising trend-line. A key support can be found at 1.4566 (13/04/2015 low).

USD/JPY has broken the resistance implied by the declining trend-line before bouncing back. The pair is still moving around the 200-day moving average. Hourly support is given at 118.61 (04/09/2015 low). Stronger support can be found at 116.18 (24/08/2015 low). Hourly resistance can be found at 121.75 (28/08/2015 high). A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 118.18 (16/02/2015 low).

USD/CHF is still holding below resistance at 0.9844 (25/09/2015 low). The technical structure still shows an upside momentum. We remain bullish in the medium-term. In the long-term, the pair has broken resistance at 0.9448 suggesting the end of the downtrend. This reinstates the bullish trend. Key support can be found 0.8986 (30/01/2015 low).

Resistance and Support: