Daily Commentary: USD/IDR Trading In A 4.8% Range

EM wild, DM calm: The contrast between the volatility in EM and typical summer calm in G10 is astonishing. Over the last 24 hours USD/IDR has traded between 10,913 and 11,433, a 4.8% range, USD/BRL traded in a 4.1% range and USD/INR a 3.0% range. That’s over one day or so. By contrast, EUR/USD has started the morning in Europe with a 1.32 or 1.33 handle for 32 straight business days, according to our data. The turmoil in EM shows no signs of abating while the shock to DM from the Syrian crisis calmed down somewhat yesterday. An attack on Syria seemed less immanent yesterday as the UN inspectors suggested the need more time to complete their report and Russian’s UN representative said no action can be taken until they complete their report. Oil prices came down and many of the risk aversion trades retreated. As a result most currencies Wednesday just moved in the opposite direction from what they had done on Tuesday.

Bank of England Gov. Carney’s speech yesterday failed to change people’s view of UK monetary policy. He argued that the UK was not likely to reach 7% unemployment by mid-2015, when the first interest rate move is priced in, and stressed furthermore that the 7% level was not a trigger for tightening in any event. Furthermore he said the Bank would be willing to ease further if high market rates started to impact growth. But that’s the rub – they have to start impacting growth. So long as growth remains in an uptrend, he implied, they won’t do anything. That just reinforced the market’s belief that the Bank is likely to start tightening in 2015 and GBP strengthened. I’m not so sure; I think the UK economy may be weaker than many private-sector economists are expecting. I think as growth expectations are revised down, so too will GBP/USD forecasts.

The economic calendar is looking pretty busy today. In Europe, the German unemployment rate in August is forecast to remain unchanged at 6.8%. CPI for August is estimated to have risen 0.1% mom, a slowdown from July’s +0.5%, which is not likely to impact ECB thinking. Business confidence in France and consumer confidence in Italy and the UK are also due out today. They are expected to be unchanged to higher, corroborating the gradual improvement in the Eurozone. In the US, 2Q GDP is expected to be revised up to 2.2% from 1.7%. That could help to improve confidence in the US although 2Q is looking further and further in the past. Initial jobless claims in August are projected to show a smaller rise of 331K vs 336K last week, which may help to reassure the markets that tapering is indeed on its way.

The Market

EUR/USD
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• EUR/USD moved lower yesterday, finding support at the psychological level of 1.3300 (S1). Currently the pair is moving in a sideways trading range between the psychological levels of 1.3300 (S1) and 1.3400 (R1). Investors would have to push the pair outside of those boundaries in order to let it enter a trending phase. For the past few days, the MACD oscillator’s value is around zero, confirming the neutral momentum of the price and the sideways action.

• Support: Support is found at the 1.3300 (S1) psychological level, followed by 1.3231 (S2) and 1.3152 (S3) respectively.

• Resistance: Resistance levels are 1.3400 (R1), followed by 1.3448 (R2) and 1.3517 (R3) (daily chart).

USD/JPY
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• USD/JPY moved higher during yesterday’s activity, rebounding once again off the psychological level of 97.00 (S1). Currently the pair is below the 98.09 (R1) resistance level and the previous uptrend line. An upward break of them should target the next resistance at 99.13 (R2). However, if it finds resistance at those levels, forming a lower high, we expect the downward movement to continue.

• Support: Support levels are the psychological 97.00 (S1), followed by the 95.77 (S2) and 93.77 (S3).

• Resistance: Resistance levels are 98.09 (R1), followed by 99.13 (R2) and the psychological level of 100.00 (R3).

GBP/USD
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• GBP/USD moved sideways during yesterday’s session, after managing to test with a candle’s shadow the 1.5431 (S1) support level. Currently the pair is trading at the uptrend line and if the bulls are strong enough to push it higher, I expect them to break the 1.5569 (R1) level and target the resistance of 1.5674(R2). This scenario should confirm the end of the short term correction and the continuation of the rate’s uptrend. However, the MACD remains below zero and we should wait to enter its bullish zone in order to add significance to the aforementioned probable move.

• Support: Support levels are at the 1.5431 (S1), 1.5200 (S2) and 1.5100 (S3).

• Resistance: Resistance is identified at 1.5569 (R1) followed by 1.5674 (R2) and 1.5752 (R3) (daily chart).

Gold


• Gold moved lower yesterday, after finding resistance at the area of 1422 (R1) which coincides with the Fibonacci 38.2% retracement of the October-July downtrend (daily chart). Currently the price is sitting at the 20-period moving average and a cross below it and the 1394(S1) support should signal the beginning of a short-term correction. Additionally, MACD oscillator remains in a bullish zone above zero, but crossed below its trigger line, confirming the current weakness of the precious metal.

• Support: Support levels are at 1394 (S1) followed by the 1376 (S2) and 1347 (S3).

• Resistance: Resistance is identified at 1422 (R1), followed by 1440 (R2) and 1485 (R3), both identified from the daily chart.

Oil

• WTI corrected yesterday’s rally, returning to test the upper boundary of the trading range at 108.85(S1). If the price achieves a rebound at that level, it will strengthen the likelihood that the uptrend continues. Meanwhile, both Stochastic and RSI oscillators exited their overbought areas confirming the pre-mentioned correction.

• Support: Support levels are at 108.85(S1), 107.53 (S2) and 105.50 (S3).

• Resistance: Resistance levels are at 112.14 (R1), followed by 121.13 (R2) and 128.54 (R3), both found from the weekly chart.

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MARKETS SUMMARY