Euro zone deflation risk is limited

Good Morning,

- The dollar held steady on Tuesday, ahead of the U.S. Federal Reserve's two-day meeting that begins later today, for clues to the direction of U.S. interest rates.

- ECB’s Praet: Euro zone deflation risk is limited, economy has lost momentum but no deflation is present.

- France and the European Commission are moving closer to a compromise ahead of a Wednesday deadline for the Commission to determine if Paris is in "serious non-compliance" with budget rules. While President Francois Hollande told journalists at the EU summit on Friday that "we have done what we have to do," on the 2015 budget, government officials in Paris hinted at more flexibility. "The dialogue is continuing and adjustments can still be made," one French government official said. A drawn-out confrontation between Paris and Brussels would have negative consequences for both sides, the official said

- The Bank of Japan will consider moderating its language on inflation in a report this week to take account of the impact of lower oil prices, according to people familiar with central bank’s discussions. The central bank may tone down or abandon its assessment that consumer-price gains are likely to “follow a rising trend again from the second half of this fiscal year,”

- Japanese retail sales in September rose 2.3 percent from a year earlier, data showed, suggesting consumer spending is gradually picking up.

- The ECB's plan to buy private sector assets may fall short of its goal and pressure is likely to build for bolder action early next year, with government bond purchases an option, ECB sources said. The euro zone's central bank started buying covered bonds last week and plans to buy asset-backed securities (ABS), or bundled loans, later this year -- both with a view to fostering lending to businesses and thereby supporting the bloc's economy.

- Goldman Sachs on USD: he USD index (DXY) dropped down to test the top of its old range; highs from Jul. ‘12 to Jul. ‘13 at 84.53-10 and the fact that it held this level well as support (mainly on a weekly close basis) indicates that bullish momentum is still very much intact, notes Goldman Sachs. For EUR/USD, GS notes that there’s now four of five waves apparent since the May peak indicating that the market seems to be setting up for at least one more impulsive move lower to take place very soon. "Using wave i as a measure, an equal length wave v would theoretically take EURUSD down to ~1.2395 (at minimum). Moreover, it’s important to keep in mind that the broader rising wedge that completed back in March ultimately has a target back at the Jul. ‘12 lows which comes in down at 1.2043," GS projects.

- U.S. Existing Homes Rise rose less than forecast in September, showing housing will take time to gain momentum. The pending home sales index increased 0.3 percent after dropping 1 percent in August, data showed yesterday. The median projection in a Bloomberg survey of economists called for a 1 percent gain.

- Also U.S. Services PMI Business Activity Index signaled the slowest rate of output growth for six months, data showed on Monday.

- Federal Reserve officials approach the Oct. 28-29 Federal Open Market Committee meeting amid unsettled financial markets, weak inflation around the globe, and slowing economies outside the U.S. Most officials favor holding off on interest rate increases until next year and ending the central bank’s bond-buying as planned this month. Less clear is whether they will change the language in their policy statement saying they will keep interest rates near zero for a “considerable time.”

- U.S. crude was last at $80.80 per barrel after dropping as low as $79.44 on Monday, its lowest level since June 2012, after Goldman Sachs cut its price forecasts.

Have a nice Day !