Mid-Day Report: Euro Dips as OECD Urged More ECB Actions

Euro dipped against dollar and yen today as OECD warned that Eurozone is once again the biggest threat to global economy and urged aggressive actions from ECB. The Australian dollar pared back some of the earlier loss but stays generally weak. Dollar remains firm against commodity currencies in general and yen and is bounded in tight range against Sterling. In other markets, European stock indices opened lower today but quickly reversed the losses. US futures also pared back some losses and point to flat open. Commodities are mixed with gold mildly up while crude oil stays pressured.

The Organization for Economic Cooperation and Development lowered global economic forecasts for 2014 and 2015. US growth is projected to be 2.1% in 2014 and 3.1% in 2015, down from prior forecast of 2.6% and 3.5% respectively. Eurozone growth is projected to be 0.8% in 2014 and 1.1% in 2015, comparing to prior forecast of 1.2% and 1.7% respectively . UK growth is projected to be 3.1% in 2014 and 2.8% in 2015, comparing to prior forecast of 3.2% and 2.7% respectively. Japan growth is projected to 0.9% in 2014 and 1.1% in 2015, down from prior forecast of 1.2% and 1.3% respectively. Growth projection for China was unchanged at 7.4% in 2014 and 7.3% in 2015.

OECD noted that risks to global economy include geopolitical conflicts in Ukraine and Middle East, Scottish independence referendum as well as tightening from Fed. Nonetheless, it highlighted Eurozone as the major threat. It said that “given the low-growth outlook and the risk that demand could be further sapped if inflation remains near zero, or even turns negative, the OECD recommends more monetary support for the euro area.” OECD also added that “recent actions by the European Central Bank are welcome, but further measures, including quantitative easing, are warranted.”

Regarding the situation in Scotland, OECD said that a Yes vote in this week’s independence referendum will create great uncertainties and it “would take many years to unlink ties between Scotland and the rest of the UK”. And, “the consequences of a Yes vote would very much depend on the policy steps taken”. It said that “Better together is perhaps the way to go”.

On the data front, US empires state manufacturing index rose sharply to 27.5 in September. Eurozone trade surplus narrowed to EUR 12.2b in July. Swiss PPI dropped to -1.2% yoy in August. UK Rightmove house price rose 0.9% mom in September. A batch of weak economic data released fro China over the weekend highlighted the risk of steeper slowdown in the economy. Industrial production rose 6.9% yoy in August, comparing to prior month’s 9.0% yoy in expectation of 8.8% yoy. That’s the slowest pace since December 2008 outside out lunar new year periods. Retail sales rose 11.9% yoy in August versus expectation of 12.1% yoy. Fixed asset investment rose 16.5% yoy versus expectation of 16.9% yoy.

Looking ahead We have a busy week ahead with the focus clearly on the FOMC meeting and Scottish referendum. While the Fed’s move in September is widely expected, the monetary policy outlook is what investors mostly concerned about. A more hawkish statement would intensify speculations that the first rate hike would come earlier than expected. The Scottish referendum would be a highly uncertain event as various polls have shown that it would be very tight race. During the week, the RBA minutes for the September meeting would be released on Tuesday. On Wednesday, the BOE minutes would be released with investors focusing on whether there were more members dissenting on maintaining the status quo. More in FOMC Meeting And Scottish Referendum Key Market Movers

Daily Pivots: (S1) 0.9314; (P) 0.9341; (R1) 0.9362; More….

USD/CHF recovers mildly today but stays in range below 0.9395 temporary top. Intraday bias stays neutral for more consolidations. In case of another retreat, downside should be contained well above 0.9175 support. Larger rally is expected to resume later. Break of 161.8% projection of 0.8702 to 0.9036 from 0.8855 at 0.9395 will target 261.8% projection at 0.9729 next.

In the bigger picture, price actions from 0.9971 are viewed as a medium term correction pattern and should have completed with three waves down to 0.8698. Rise from 0.8698 should target a test on 0.9971 high first. Decisive break there will extend the whole long term rise from 0.7065. We’ll hold on to this bullish view as long as 0.9036 support holds.

USD/CHF 4 Hours Chart

USD/CHF Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
23:01
GBP
Rightmove House Prices M/M Sep
0.90%

-2.90%

07:15
CHF
Producer Import Prices M/M Aug
-0.20%
0.00%
0.00%

07:15
CHF
Producer Import Prices Y/Y Aug
-1.20%
-1.00%
-0.80%

09:00
EUR
Eurozone Trade Balance (EUR) Jul
12.2B
15.9B
13.8B

12:30
USD
Empire State Manufacturing Index Sep
27.5
15
14.69

13:15
USD
Industrial Production Aug

0.30%
0.40%

13:15
USD
Capacity Utilization Aug

79.20%
79.20%

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