Market Pushes Back Expectations Of Lift-Off, RBA To Stay On Hold
Swissquote Bank Ltd | Oct 05, 2015 07:50AM ET
US job report delay rate hike in 2016
In the wake of a disappointing September US jobs report, market participants finally start to question the Fed’s eternal optimism. The last nonfarm payrolls report shows that the US economy created only 142k jobs in September while economists were looking for a reading of 201k. Even worse, the previous figure was downwardly revised to 136k from 173k. It seems now that the Federal Reserve is not only having an inflation issue but also a job market issue - average hourly earnings show that wage pressure was anaemic during the month of September. The US economy is losing momentum and it appears that the world’s biggest economy is even more vulnerable to the global environment than anticipated. The Fed is now facing a dilemma: either it decides to save what is left of its credibility and raises rates by year-end, taking the risk to worsen the situation by strengthening the dollar; or FOMC members decide to adjust their views and speeches to the current state of the global and local economy and maintain the federal fund rate close to zero.
The market is now pricing a rate hike in March 2016. The likelihood for October fell to 10% while the odds of a lift-off in December dropped to about 25%. However, even if the Fed claims that its monetary policy remains data dependent, the “credibility” argument prevents us to rule out once and for all a rate hike in December. We expect the Fed to move in March. In the short-term, the greenback will remain highly sensitive to Fed members’ comments and economic data from the US. However, the economic calendar is relatively light this week with Markit PMI and ISM non-manufacturing index due today, US trade balance due tomorrow and wholesale inventories and import price index due on Friday.
RBA likely to hold rates
The Reserve Bank of Australia will tomorrow release its Cash Rate Target, currently at 2%. Markets are currently pricing in a 90% probability that the rates are going to be unchanged. However there are a decent likelihood, estimated at 40%, that a rate cut will happen by next year.
The fundamentals are improving. Inflation data, released this morning from the institution TD Securities, increased in September by 0.3%m/m. The annualized figure has increased also toward by 2% year-on-year. The Australian currency has devalued and remains currently very low, which has taken off some pressures on the country as it has boosted the exports. Nonetheless, one of the major partner for commodities is China and the lingering weak commodity prices are weighing on the Australian growth. In particular the mining industry is suffering and investments have declined sharply. It seems that the positive effects of a weak currency are not offsetting the growth deceleration due to negative world market conditions.
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Another issue is the real estate bubble that Melbourne and Sydney are facing. Decreasing the rates will fuel this bubble and, if the RBA decides to cut rates year by next year, it will give up control of the housing endless increase.
GBP/JPY - Failed To Challenge Support At 180.24
The Risk Today
EUR/USD is moving along the direction implied by the upside trend-line. Support can be found at 1.1087 (03/09/2015 low). Stronger support lies at 1.1017 (18/08/2015 low). Hourly resistance can be found at 1.1330 (21/09/2015 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 still trading between the 50% and the 61.8% Fibonacci retracement. Hourly support can be found at 1.5087 (05/05/2015 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 is still moving sideways. 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 116.18 (24/08/2015 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:
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