FUNDAMENTAL OVERVIEW
The biggest news event of the week will be release of United State’s unemployment data coming up on Friday, October 5th. General forecast suggest the rate to be stable compared to last month’s According to American Bureau of Economic Analysis, consumer spending increased 0.1% in previous month. However, American household savings rate went down to 3.7% from previous 4.1%. The data suggest that consumers had to pay for their spending from savings and not from rising income level. Thus, a sustainable increase in demand and recovery of the economy is not likely to happen anytime soon.
Across the pond, what will move the markets the whole week around the world is data coming up from Eurozone. According to Eurostat (EU’s statistics department) mentioned that consumer inflation has gone up from seasonally adjusted annual rate of 2.7% to 2.6% in the previous month. Based on that we presume European Central Bank will not be lowering the rates this month. However, increasing the policy rate will hurt the recovering economy. Hence, ECB is likely to leave their interest rate to current level.
Disappointing news from Japan continues as their industrial output decreased more than expected levels during August. Japan’s Ministry of Economy, Trade and Industry reported that industrial production fell to -1.3% compared to -1% from July 2012. Beside reducing export orders from Japanese car and electronics industries, Japan is facing boycotts and political downturn in China which will likely to impact the export market of Japan. As a result Japan’s Nikkei 225 average fell 73.65 points last week, a -0.83% decrease overall.
INTERESTING PAIRS OF THE WEEK
EUR/USD
EUR/USD had a mid-term bullish run since July 25. However, for the last several days, the pair has been sloping downwards. We expect that 200 SMA support at 1.2800 will hold the pair. However, if price manages to close below 1.2780 this week, expect the pair to continue its longer term bearish trend indefinitely.
GBP/USD
The pair rallied to 1.6300 and it was an unsustainable move. However, GBP/USD has formed a decent upward equidistant channel as illustrated in the chart. If the pair manages to close below the lower trend line of the channel, expect it to retrace and continue downwards. However, most likely the pair will be ranging this week.
USD/JPY
Technically, USD JPY is in a range market with a slight bearish sentiment. However, Bank of Japan is unlikely to let the pair appreciate as it will hurt their export market. Last Friday, USD/JPY had a bullish candle engulfing previous 3 days. We are expecting the pair to move upwards to 78.10 area to test last week’s resistance. If broken, this week the pair could reach as far as 78.60. Expect USD/JPY to stay range bound till Friday. Once the US unemployment data is released we will have ample data to formulate a directional bias in the pair. Till then a range bound market is expected this week.