NZD/USD: The Fed keeps the RBNZ in check

GROWTHACES.COM Trading Positions

EUR/USD: short at 1.2760, target 1.2620, stop-loss 1.2820

USD/JPY: long at 107.60, target 109.00, stop-loss 107.10

USD/CHF: long at 0.9450, target 0.9555, stop-loss 0.9410

USD/CAD: long at 1.1170, target 1.1290, stop-loss 1.1110

NZD/USD: short at 0.7920, target 0.7760, stop-loss 0.8000

EUR/CHF: long at 1.2085, target 1.2160, stop-loss 1.2045

GBP/JPY: long at 172.00, target 175.00, stop-loss 172.30

EUR/USD: All eyes on the Fed

(we went short at 1.2760, in line with our strategy)

• The U.S. Commerce Department says orders for durable goods retreated 1.3% mom in September after a record 18.3% mom fall in August. The August drop followed a record 22.5% mom increase in July.

• The Conference Board said that its confidence index climbed to 94.5, the strongest reading since October 2007. Job gains and falling gasoline prices have helped to improve sentiment.

• Investors are focused on the FOMC meeting today. The Fed is expected to wait longer before hiking interest rates after a volatile month in financial markets that saw some measures of inflation expectations drop worryingly low.

• The Fed will issue a policy statement at 1800 GMT. It will not update economic forecasts or rate projections, and Fed Chair Janet Yellen is not scheduled to address the media.

• As we suggested in The Week Ahead publication the FOMC’s statement will not reiterate the “considerable time” guidance. The change will be a natural consequence of ending the quantitative easing. The whole sentence: "...it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends” refers to the end of quantitative easing. If the quantitative easing ends, the sentence will need to be changed anyway.

• It is likely that the Fed will propose more data dependency of the future policy path. The Fed may include a reference to inflation or unemployment rate, but in our opinion inflation data are slightly more important now due to rising possibility of lower inflation path.

• The Fed could flag the risk that inflation might remain below target for longer than previously thought. In another move that would be interpreted as dovish, it could also highlight the threat that a global slowdown could pose to U.S. growth. On the other hand, the swift decline in the jobless rate raises the question of whether the Fed will soften its view that there is "significant" underutilization of labor resources.

• The EUR/USD rose yesterday after weak US durable goods data. The rate reached daily high at 1.2765. We used the higher level to get short at 1.2760, in line with the strategy of GrowthAces.com. We set the target at 1.2620 and the stop-loss at 1.2820. The nearest resistance is yesterday’s peak at 1.2765 and the nearest support level is 10-dma at 1.2722.

Significant technical analysis' levels:

Resistance: 1.2765 (high Oct 28), 1.2784 (hourly high Oct 21), 1.2841 (high Oct 21)

Support: 1.2722 (10-dma), 1.2698 (21-dma), 1.2635 (low Oct 24)

USD/JPY: Japan’s industrial output data did not help the JPY

(we went long at 107.60 ahead of today’s FOMC statement)

• Japan's industrial output rose at the fastest pace in eight months in September. The 2.7%rise in factory output exceeded the median estimate of a 2.2% gain. The upbeat report came a day after Monday’s (GMT) data showing retail sales rose for the third straight month in September.

• By sector, output by transport equipment manufacturers, including automakers, gained 4.7%. The electronic parts and devices sector saw a 5.8% rise.

• At its policy review on Friday the BoJ is expected to slash its growth projections but stick to the view that the economy is on track to meet a 2% target next year.

• The government plans to raise the sales tax to 10% in October 2015. Better macroeconomic data increase the likelihood that Prime Minister Shenzo Abe will decide in December to proceed with the planned tax hike next year.

• In the opinion of director of sovereign ratings at the Standard & Poor's agency Takahira Ogawa Japan's plan to raise its sales tax for the second year in a row next year may not be positive for the country's credit rating if it snuffs out any chance of economic recovery. He said the Bank of Japan's monetary easing could become a negative factor for the sovereign rating if the scheme is kept in place too long, because it would become too difficult for the central bank to unwind its large purchases of government debt. S&P has an AA- rating on Japan, which is three notches from the top rating of AAA. S&P's rating on Japan has a negative outlook, meaning a downgrade is possible.

• At GrowthAces.com we have taken profit on our long EUR/JPY position (135.20-137.70) and still keep long USD/JPY and GBP/JPY positions. The upside in JPY pairs is limited ahead of today’s FOMC policy announcement. The end of Fed’s long-term asset purchase program and dropping the “considerable time” guidance is likely to lift the USD/JPY.

Significant technical analysis' levels:

Resistance: 108.24 (hourly high Oct 29), 108.38 (high Oct 27), 108.74 (high Oct 8)

Support: 107.61 (low Oct 27), 107.39 (high Oct 20), 107.11 (low Oct 23)

GBP/USD: Stream of dovish comments weakens the GBP

(we are looking to get long)

• Deputy Governor of the Bank of England Jon Cunliffe said that the bank can afford to keep interest rates at their current record low for longer than thought, due to weak pay, low inflation and a darker international outlook.

• Cunliffe's comments are similar to those from chief economist Andy Haldane and fellow deputy governor Minouche Shafik ans suggest that there will be no support in the MPC for Martin Weale and Ian McCafferty who have backed a rate rise recently.

• The dovish comments are in line with our scenario - we do not expect interest rates hike in the UK before the general election in May at GrowthAces.com.

• The GBP erased the day’s gains late in the U.S. session after Cunliffe comments. The GBP had rallied earlier to a high at 1.6182 after weak release of U.S. durables. Investors are focused at FOMC statement now. We expected the USD to strengthen after the statement and we are looking to get long on the GBP/USD near 1.6060.

Significant technical analysis' levels:

Resistance: 1.6182 (high Oct 28), 1.6186 (high Oct 21), 1.6199 (50% of 1.6524-1.5873)

Support: 1.6100 (10-dma), 1.6089 (low Oct 28), 1.6018 (low Oct 24)

NZD/USD: The Fed keeps the RBNZ in check

(we went short at 0.7920, in line with our strategy)

• If the Fed matches the market's dovish expectations, it could check the Reserve Bank of New Zealand. The RBNZ governor Graeme Wheeler still wants the NZD lower, but even weak New Zealand’s Q3 CPI did not tame the NZD. The dovish Fed (today 18:00 GMT) could be a hard nut to crack for the RBNZ (today 20:00 GMT).

• At GrowthAces.com we do not the Fed to be excessively dovish but we expect the RBNZ do be much more dovish than recently. It cannot be excluded that the RBNZ drops the last sentence of its statement: “…we expect some further tightening will be necessary to keep further average inflation near the 2% target.”

• New Zealand business confidence rose for the first time in seven months in October. The survey's headline measure showed a net 26.5% of respondents expected the economy to improve over the year ahead, from a net 13.4% in September. A net 37.8% of respondents expect their own businesses to grow in the next 12 months from 37.0% last month.

• The NZD/USD closed higher in U.S. session at 0.7920 amidst improved risk sentiment. Better-than-expected business confidence data helped the NZD. In line with our strategy we went short on the NZD/USD at 0.7920. Our target is 0.7760. We set the stop-loss level at 0.8000.

Significant technical analysis' levels:

Resistance: 0.7959 (high Oct 28), 0.8000 (psychological level), 0.8036 (high Oct 21)

Support: 0.7884 (low Oct 28), 0.7795 (low Oct 24), 0.7708 (low Sep 29)