Financial News October 6, 2015
Euro area orders to bounce back in August
Euro area August data is early to see any major impact coming from the market turbulence surrounding China but also from the VW story which could have some impact on orders starting in September/October.
For Europe and the U.S., the data flow has continued to signal robust growth which should shelter factory orders to some extent in the coming months.
Following the stronger than expected decline in July (-1.4% mom), factory orders is expected to increase by 0.6% mom in August, says Societe Generale. Domestic orders could see a decline by around 0.5%, having surprised on the upside in July for the first time since March, while foreign orders should see a strong bounce of around 1.5% following the larger than expected decline in July.
USD moderately bullish
There is a widespread view that USD rallies ahead of the first Fed hike and sells off after. While this holds on average, the degree of dispersion suggests it would be unwise to rely on it.
"We remain USD positive into next year, particularly against JPY. The US is better placed than most countries to shoulder currency appreciation. We find global demand is a more important driver for US export growth than the level of USD", argues RBC Capital Markets.
And because much of global trade is denominated in USD, the US sees lower exchange rate pass-through than other countries. That means both on the growth and the inflation front, USD has room to rise.
Market Review October 6, 2015
The Reserve Bank of Australia left the cash rate unchanged at a record low of 2.0 per cent for a fifth straight month. Furthermore, RBA Governor Glenn Stevens signalled he has become more comfortable that a regulatory crackdown on risky property market lending is working. "Regulatory measures are helping to contain risks that may arise from the housing market," Mr Stevens said. He also added that "equity market volatility has continued, but the functioning of financial markets generally has not, to date, been impaired." Moreover, he reiterated that the Australian dollar is adjusting to falling commodity prices. Governor Stevens reiterated his opinion regarding the US Federal Reserve rate decision, saying that he US Federal Reserve would soon end its long period of near-zero interest rates.
Released during the Asian session, Australia’s trade balance fell unexpectedly last month to a seasonally adjusted -3.095B, from -2.792B in the preceding month whose figure was revised up from -2.792B. Analysts had expected Australia’s trade balance to rise to -2.550B last month. AUD/USD climbed sharply above the 0.7100 level reaching as high as the 0.7133 level and currently is trading near the 0.7110 area.
Released during the early European session, German factory orders unexpectedly fell in August in a sign that Europe’s largest economy is vulnerable to weaker growth in China and other emerging markets. More specifically, August Factory Orders dropped 1.8% versus the estimated 0.5% increase. Economy Ministry in Berlin said that weak August orders partly due to holidays, and that orders from the Eurozone are pointing upwards, while Non-Eurozone demand look less reliable. The EUR/USD pair trades lower today near the 1.1180 area with the next support seen at the 1.1149 level.
The key events for the day would be the United Stated and the Canadian Trade Balances, New Zealand GDT Price Index and ECB President Draghi speech.
Additional economic releases would be the Swiss CPI, the Canadian Ivey PMI and ECOFIN and Eurogroup meetings.
Data releases to monitor:
GBP: Housing Equity Withdrawal.
USD: Trade Balance, IBD/TIPP Economic Optimism.
EUR: ECB President Draghi speech, Retail PMI, ECOFIN Meetings, Eurogroup Meetings.
CAD: Trade Balance, Ivey PMI.
CHF: CPI.
NZD: GDT Price Index
Trade Idea of the Day
EUR/GBP
Currently the pair is trading at 0.7391. Traders must monitor the 0.7442 resistance level and the support level of 0.7335 for possible breakouts. A possible scenario would be a movement towards the 0.7419 resistance level where a break may lead to the 0.7440 area. An alternative scenario could be a movement towards the 0.7360 support level, where a break may lead to the 0.7340 area.