The Big Picture

USD looking for new sources of inspiration: The dollar remained in a narrow range as the market looked for new sources of inspiration. EUR moved lower from the beginning of the European day and remained lower after Eurozone industrial production turned out much worse than expected. There was a momentary flurry when the weekly jobless claims came out much lower than expected, but that turned out to be due to computer problems in two states. Some Syria risk crept back as Syrian President Assad started to put preconditions on his participation in the chemical arms deal and stock markets moved lower, but gold also moved lower nonetheless.

NOK was the biggest winner of the day; the country’s economic indicators are beating consensus by the most of any major country (and probably the EM countries too, although I haven’t checked them individually), according to the Citi economic surprise index. The country’s surprisingly good economic performance recently makes us think that Norges Bank will be the next central bank after New Zealand to change to a tightening bias when it meets next Thursday, Sep. 19th. To repeat a frequent theme of ours, the Bank of Japan will probably be the last central bank to change policy, so long NOK/JPY could be a profitable play (probably through long USD/JPY and short USD/NOK).

As next week’s FOMC meeting gets closer and the market starts to think about what comes after tapering begins, there may be a focus on the possibility that the US government has to shut down. (Sound familiar?) According to the New York Times, much of the government will shut down as of Oct. 1st unless Congress approves new spending bills to replace expiring ones, and by mid-October the Treasury Dept. will lose the borrowing authority to finance the government and pay its debts. To make matters worse, the Republicans in the House of Representatives can’t even agree among themselves on a bargaining position. A large bloc of Republicans are demanding the delay of President Obama’s health care law for a year as the price of going along with raising the debt limit, a demand that President Obama has made clear he will not even discuss. So far this stalemate does not even seem to be on the market’s radar screen, probably because of the “boy who cried wolf” phenomenon – we’ve been here several times before and always managed to reach a last-minute compromise. But it could start to be a market factor – a dollar-negative market factor – if the end of September approaches without a solution.

The Eurozone finance ministers’ meeting in Lithuania is the only thing on the calendar today for Europe. The main items on their agenda will be growth and financial stability in the Eurozone as well as the financial situation of Greece and the status of the bailout program for Cyprus. In US, the focus will be on retail sales for August. Market expectations for the headline figure are for a rise of 0.5% mom, showing an acceleration from +0.2% mom in July. On the other hand, the closely followed retail sales excluding autos and gasoline are expected to decelerate to +0.3% mom from +0.4% mom previously. Shortly afterwards, University of Michigan consumer sentiment for September is expected to fall slightly by 0.1 point to 82.0. Weakness in these two important indicators could cause some investors to question US growth prospects and thereby weaken USD a bit.

The Market

EUR/USD

• EUR/USD moved lower during yesterday’s session after finding resistance at the 1.3322 (R1) level, which coincides with the 61.8% Fibonacci retracement level of the previous downward wave. A clear break above that strong hurdle should target the next psychological resistance at 1.3400 (R2). On the other hand, if the rate fails to do so, bearish extensions should be triggered towards 1.3234 (S1) and 1.3188 (S2) next.

• Support: Support is found at the 1.3234 (S1) level, followed by 1.3188 (S2) and 1.3103 (S3)

• Resistance: Resistance levels are at 1.3322 (R1) (61.8%), followed by the psychological level of 1.3400 (R2) and the 1.3448 (R3) level found from the daily chart.

USD/JPY

• USD/JPY declined but after finding support at the well tested level of 99.13 (S1) recovered some of its losses. At the European open the price coincides with the 20-period moving average, heading once more towards the 100.00 (R1) level. The pair has been moving in an uptrend since the beginning of August and if it manages to break above that level, it’s likely to target the next resistance at 100.82 (R2). However, negative divergence is observed between the oscillators and the price action, so we should be aware that we could see USD/JPY move lower temporarily during the near future.

• Support: Support levels are at 99.13 (S1), followed by 96.09 (S2) and the round number of 97.00 (S3).

• Resistance: Resistance is identified at the psychological level of 100.00 (R1), followed by 100.84 (R2) and 101.52 (R3)

GBP/USD

• GBP/USD moved slightly lower after finding resistance at the 1.5840 (R1) level. Currently the pair is lying between that level and the support at 1.5752 (S1). If the bulls manage to regain their recent momentum and drive the rate above the 1.5840 (R1) level, I expect them to extend their move towards 1.5892 (R2) and probably the psychological 1.6000 (R3) level next. However the MACD oscillator crossed below its trigger line, showing light signs of weakness, which suggests that such an aggressive move is not likely today.

• Support: Support levels are identified at 1.5752 (S1), 1.567 (S2) and 1.5568 (S3) respectively.

• Resistance: Resistance found at the levels of 1.5840 (R1), 1.5892 (R2) and 1.6000 (R3), the latter two found from the daily chart.

Gold

• Gold fall sharply during yesterday’s trading session, breaking below the strong support area between the 1347 level and the 50% Fibonacci retracement level of the previous upward move. For the moment the yellow metal is finding support at the 1320 (S1) level, but if the downward bias continues I expect the price to break that barrier and slip towards the support of 1271 (S2). The MACD oscillator lies below its trigger line in a bearish territory, increasing the odds for the continuation of the decline.

• Support: Support levels are at 1320 (S1), followed by 1271 (S2) and 1245 (S3).

• Resistance: Resistance is identified at the 1347 (R1) level, followed by 1376 (R2) and 1394 (R3).

Oil

• WTI moved higher and for the umpteenth time is testing the upper boundary of its 2-month trading range. If the price breaks above that level and manages to overcome the recent highs, a newborn uptrend might be established targeting for new resistance areas. Both the RSI and the MACD remained near their neutral levels confirming the reluctance of WTI to enter in a trending phase.

• Support: Support levels are at 106.71 (S1), 105.23 (S2) and 103.44 (S3).

• Resistance: Resistance levels are at 108.85 (R1), followed by 110.58 (R2) and 112.14 (R3).

BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS

MARKETS SUMMARY