Fundamental Analysis Review And Forex Calendar October 7 ~ 11, 2013

Weekly Fundamental Analysis Review

Most traders came into this week indifferent to the news of US Government partial shutdown, but that quickly changed after the Labor Department postponed the release of September’s Nonfarm Payroll report indefinitely, leaving the market hanging without knowing whether to SELL or BUY the USD; and considering that the Fed surprised the market last month by delaying asset tapering pending on “economic data”, its frustrating to say the least…

To make the matter worse, Republicans that were responsible for engineering this shutdown are without a clear plan for achieving their goals. With President Obama and Senate Democrats refusing any negotiation to the Obamacare, or better known as Affordable Care Act, market remains as nervous as ever with the debt ceiling deadline looming (October 17), although House Speaker Boehner reportedly told his caucus that he will not allow the US to default on its debt, even if raising the debt ceiling requires Democratic votes…

In Europe, during the ECB press conference on Wednesday, Draghi’s surprising slightly less dovish tone pushed the euro above the 1.3600 level. Draghi reiterated that the ECB was seriously considering another LTRO and that rate cut was once again discussed during the meeting, however aside from Draghi’s tone, ECB didn’t offer any significant improvements in its projections or forward guidance.  ECB remains to “keep rates or lower for an extended period.”

Meanwhile, Italian PM Letta won a series of victories against Silvio Berlusconi this week, after coming into this week with a potential threat of a government breakup. On Friday, an Italian Senate committee recommended that Berlusconi be stripped of his position in the legislature. A final vote in the full Senate is planned within the next 20 days and might put an end to this latest fiasco in Italy.

In Japan, the USD/JPY dropped to one-month lows below the 97 handle as the U.S. shutdown led to greenback weakness; Japan PM Abe confirmed the consumption tax hike from 5% to 8% in April 2014, along with stimulus and potential corporate tax cut to offset the effects of the sales tax hike.  All in all JPY remained in recent trading range.

In conclusion, with the U.S. Government shutdown, market and the Feds were left in suspense on the latest BLS Nonfarm Payroll Report, but even if it were released on Friday, judging from the worse than expected ADP and the Employment subindeces within both PMIs, the NFP would probably come in less than 180K, which means October tapering should not take place, or the Fed risks confusing the market even more.  I’d be looking to SELL USD on rallies, especially considering that with the government in shutdown, tapering should not take place in 2013, regardless of the NFP figures. EUR should be a BUY on dips, this is a direct result of a potentially weaker USD. However, I would recommend to wait patiently for a drop in EURUSD before getting in, as recent gains may consolidate before rallying again.  GBP should be a BUY on dips, especially considering recent consolidation, which may lead to an excellent entry level, if we were to re-test the 1.6000 psychological support this week.  CAD, AUD, and NZD are likely to follow market sentiment, therefore I’d recommend to trade them following technical and news releases.  CHF should weaken in the long run, but with a weaker USD, it may take longer now for USDCHF to move above the 0.9400 level, but my view remains unchanged for the CHF, that it is set to weaken.  JPY is likely to follow the long-term bearish trend, therefore the direction remains unchanged to SELL JPY on rally.

Forex Calendar October 7 ~ 11, 2013

1. Wed October 9, 2013 – 8:30pm EST – AU Employment Change
2. Thu October 10, 2013 – 7:00am EST – UK BOE Interest Rate
3. Fri October 11, 2013 – 8:30am EST – CA Employment Change

Thanks,