usdindex
Dollar Frozen on S&P 500’s Longest Tumble in 16 Months
Activity for the Dow Jones FXCM Dollar Index – measured by the Average True Range – has dropped
sharply from last week’s post-FOMC volatility swell. In fact, the benchmark currency is just off its
lowest levels of activity in five months. This lack of performance may strike some as unusual given
the S&P 500 has extended a five-day drop – its most consistent tumble since May of last year. Yet,
as persistent as the slide for the benchmark of risk appetite has been, there is little conviction behind
the move. We can measure that in both implied and realized volatility measures. The VIX Index (often
referred to as the ‘fear’ gauge) has trended towards six year lows for some time. Yet the measure
of actual or realized volatility has itself collapsed to similar lows this week. While a trend in a market
index like the S&P 500 can run astray of fundamentals for an extended period due to stimulus and
other factors, risk conditions can only remain submerged for only so long.
GBPUSD
British Pound Advances Despite BoE’s Yield Reassurance, Yield Drop
An improved yield forecast has been a key catalyst in the sterling’s recover over recent weeks and
months. However, policy officials have done everything they can to curb speculation that an improved
growth forecast and distaste for QE expansion would translate into earlier rate hikes. The Bank
of England (BoE) has reiterated its vow to keep rates at their exceptionally low level until 2016. It
seemed the central bank did the same with the Financial Policy Committee meeting minutes that
were released this past session – even though that deviates somewhat from its focus. The report
attempted to play down higher rates as a reaction to growth and Fed Taper fears. Nevertheless, yield
forecasts are still seeing a hike in 2015 with a probability of 2014. That said, a lot of hawkishness
has been priced into the sterling. Where the BoE may not be able to shake the market’s convictions,
disappointing data could. The 10-year Gilt yield has recently dropped to its lowest level (2.75 percent)
in a month. Further retracement may evolve into a serious selling point for a yield-hopeful currency.
GBP/USD daily – No confirmed top in place yet
· The big picture remains blurry for the moment as a major game change would only be confirmed above 1.6337 (monthly triangle) and a top in place would only be indicated via a break below 1.5883 (minor 38.2 %).
· That said and particularly as long as the latter is not taken out, we still see the possibility of extending the upside for a proper test of 1.6337 which would be indicated via a decisive hourly close above 1.6115 (i.e. above 1.6150). A break below 1.5883 would on the other hand have to be confirmed via a break below 1.5758 (int. 38.2 %).
EURUSD
Euro Unconvinced of Greece’s Assurances No Third Bailout Necessary
According to Greece’s Deputy Prime Minister (and Foreign Minister) Evangelos Venizelos, Greece
will not need a third bailout. This has been a point of considerable speculation – though not active
positioning – in the FX market as EU officials, Germany Finance Minister Scheauble and others have
speculated such an outcome was essentially inevitable. Yet, in an interview with Reuters, Venizelos
said the country could avoid asking for a third round of aid with better terms for its existing program
and a return to the capital markets. This is exceptionally optimistic for a country that has proven
consistently over-reaching with its forecasts. As it happens, another report made the wires quoting
Troika sources that suggested officials were sceptical of Greece’s ability to hit a primary surplus – a
prerequisite to altering terms on its bailout.
USDJPY
Japanese Yen Drops Sharply on Confirmation of Impending Stimulus
In the early Tokyo hours, the Japanese was flat-lining when the Nikkei 225 opened to a sharp 1.4
percent tumble below 14,500 – a closely watched, even figure. This break leveraged the potential
for an Asia-session risk shift that could generate momentum in an otherwise aimless market and in
turn spark a sell off on the carry-backed yen crosses along the way. Yet, that drive was reversed
abruptly a few hours into active trade as news roused speculators to optimism. A few headlines hit
the newswires, but two stood out. According to the chief of the LDP tax panel, Prime Minister Abe will
produce his stimulus plans with his tax policies on October 1. Add to this, a Kyodo report suggested
the stimulus announcement would include plans to explore lower effective corporate tax rates to
encourage growth. Both are encouraging, however, they are not particularly original. We have heard
similar conjecture before. As such, yen crosses will struggle to rise on this news alone.
Oil 
US Oil at Risk of Major Bear Shift Should $102 Break
With Wednesday’s close, US oil has fallen for five consecutive trading days. That matches the longest
series of losses for the commodity since May 2012. Unlike many other assets with a risk sensitivity,
oil has made a concerted drive that can press for further trend development. Standing in the way of a
full-scale bear trend is $102. This level is technically-heavy with a confluence of a multi-month range
floor, 100-day moving average and other cues. If the fundamental backdrop were allowing a simple
focus on the balanced risk backdrop, a ‘normalizing’ bounce would be in order. However, there is
another line of premium that can still be worked off through supply-and-demand. In the past week,
we have seen the Syrian crisis deflate and US-Iranian relations warm – easing Middle East supply
disruption concerns. Meanwhile, DoE oil inventories reported the second biggest jump (2.635 million
barrels) in three months while implied demand set an equivalent low (15.33 million barrels).
oil Zoom
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