The market loses an intrigue: the security shot is necessary

Scandal between the Minister of Finance of Germany Schäuble and the ECB gains strength

The market waits for changes. At last the Fridays American data allowed main currencies to bring down stops of speculators on both sides. The slack period comes to the end: the attention is displaced to meetings of FRS and Bank of Japan. All ideas of the last week are fulfilled - there aren`t strong motivations for moving till Wednesday.

General background before the FRS meeting - habitually negative. Unlikely rather positive report on CPI of the USA can «outweigh» all multivalued data - both in retail sales, and on sentiment in a service sector. Today all statistics of the USA are working against increase in a rate of FRS - on such data it`s better to toughen, but not to mitigate the monetary policy. In absolute terms industrial production in the USA falls two years in a row, it obviously needs dollar downing at least for 10%. But then there are problems with a capital inflow: in the August capital outflow was $207 billion, the deficit in the account of current transactions was $119.9 billion (in a year - about $450 billion). So the expensive dollar - it`s bad, and the falling dollar – unlikely good. If FRS doesn't raise a rate in September (the statistics provides full authority) and won't give rather tough comment, then the choice won't be - irrespectively of the decision on September 21 it will be necessary to devaluate of the dollar.

The U.S. Treasury once again lowered the amount of the offer on 4 weeks bills offered weekly on Tuesdays (from $40 billion to $35 billion). Today traders prefer short-term papers, because the preserving policy of FRS is estimated as base for growth of inflation, which reduces the cost of a debt, which terms expire in decades. According to a modern economic policy of the USA - reducing fundraising of a short debt is considered the first sign of a new cycle of dollar downing.

The Central Bank of Japan tends to further movement of rates in a negative zone, because an increase in the purchases of assets reaches the limit. Focus of attention is displaced from a monetary base on «manual» rate adjustment. Reducing the purchases of bonds with term higher than 25 years is discussed to support growth of profitability, in exchange, they promise an increase in the purchase of short-term bonds. The stock exchanges of Japan have a rest on Monday and on Thursday therefore we wait for the main drive on the yen on Tuesday (prior to an event) and on Friday.

The approach of OPEC meeting in Algeria on September 27 is felt. Reports of MEK and OPEC supported a negative fundamental background for oil: excess will remain longer, inventory will continue to increase during 2017 because of a lack of demand from India and China, and also because of an increase in production from the OPEC countries. Nevertheless, the specific tough decision is hardly possible now. To Iran, as well as other countries, the price of $50-60 for barrel is necessary to protect the market from growth of production from competitors, but the real demand for raw materials at such price won't be for a long time.

From the other news we will note:

  1. In Germany scandal between the Minister of Finance of Germany Schäuble and the ECB gains strength - Draghi's offer that Germany should use own fiscal space for maneuver for the purpose of reducing exportable surplus was rejected. So Germany finally pays for huge imbalances between creditors and debtors of the Eurozone. Claims for exportable surplus of Germany are advanced, as the ECB didn't change the monetary policy which caused stable weakening of the euro. This year current account surplus of the country (€278 billion or $313.28 billion), most likely, will achieve a new record again and will be ahead of China.
  2. On Thursday, in 10 minutes after opening of the Comex gold platform for an hour 6 289 900 ounces of «paper» gold (196,5 tons) were sold. Usually in such situations in the New York Stock Exchange the electronic system (for example, BATS) stops the bidding - still before the destroying effect of a paper overload strikes on the market. According to the Comex current report, the exchange on the registered account has 2,37 million ounces of a precious metal, which can be delivered at any time. So this speculation exceeds by 2,7 times amount of the gold available for delivery, or the sold amount is equal to 58% of all inventory which is in safes of this exchange. The speculation reason, as well as its participants, remain unknown, and the negative from such transaction can have delayed effect.
  3. Deutsche Bank AG starts negotiations on claim settlement of the U.S. Department of Justice in the case of a manipulation with the prices of mortgage securities before crisis of 2008. The claimed amount of $14 billion is considered as «initial», but in general the bank isn't ready to pay at all, according to lawsuits from 2005 to 2007, when it issued and carried out sale of debt obligations.
  4. Greece once again will try to convince the markets that simplification of its debt load «close more than ever», that the right of participation in the program of purchases to balance from the ECB is almost acquired, and a reduction in taxes is expected in 2 years. Tsipras continues to insist on a subject of reparations in the amount of €332 billion from Germany for the German occupation during World War II.

On an exhalation after the Wednesday (Japan, FRS) it`s worth paying attention to Draghi's performance on an action in Frankfurt, Eurozone data on activity of a private sector and America about its data on unemployment and on housing sales volume in the secondary market.

EUR/USD: resistance 1.1195 (strong) - (1.1225/1.1232) - 1.1280 - 1.1310 (strong) - 1.1360; supports 1.1120 (strong) - 1.1084 (strong) - 1.1056 - (1.1013/1.0954) (protection of market makers). In case of return to 1.1320 and steady trade above the mark 1.1400 can be the following purpose. The negative scenario is connected with level 1.1000.

GBP/USD: supports (1.2990/1.2941) (system of options) - (1.2893/1.2857) (protection of market makers); resistance: (1.3060/1.3088) (protection of level 1.3100) - 1.3150 (strong) - 1.3250. Risks in day are defined by trade below/higher than the range (1.3000/1.3150) and opportunities of the movement, respectively, to 1.2900 and 1.3380. Wednesday can change alignment of forces completely.

Author: Alexander Ward,
ForexChief Currency strategist