Italian government collapsed – EUR/USD could start lower

The Italian crisis deteriorated fast: ex-PM Silvio Berlusconi pulled his ministers out of the coalition government led by Enrico Letta, leaving it hanging in the air. With political parties blaming each other for the cause to the crisis, the ball returns to the court of president Giorgio Napolitano, who is trying to negotiate a new government and avoiding fresh elections.

Italy is the euro-zone’s third largest economy. EUR/USD could certainly open lower with a Sunday gap after this development.

Italy did not manage to pass new economic measures on Friday, and the government collapsed on Saturday, but PM Letta says the reason is not the economic differences, but rather Berlusconi’s personal status.

The Italian crisis was on the back burner for quite a while, and now it is on the front page, trying to take away the spotlight from the potential US government shutdown.

Read More

Forex - Dollar falls to 1-month low versus yen

The dollar fell to a one-month low against the yen on Monday as the risk of a looming U.S. government shutdown bolstered investor demand for the safe haven yen.

USD/JPY hit 97.69 during late Asian trade, the lowest since August 29; the pair subsequently consolidated at 97.85, shedding 0.39%.

The pair was likely to find support at 96.97, the low of August 27 and resistance at 99.03, Friday’s high.

Political wrangling in Washington over funding for President Barack Obama’s healthcare law continued over the weekend, fuelling fears over the prospect for a U.S. government shutdown 

Congress must pass a short-term budget by midnight on Monday in order to keep the government open.

Republican opposition to the funding of the Affordable Care Act has created a standoff with the White House and the Democratic-controlled Senate, which have both said they will not support any budget bill that defunds or amends Obamacare.

Market sentiment was also hit after data released on Monday showed that China’s HSBC manufacturing index was revised down to 50.2 from an initial reading of 51.2 this month, indicating that the recovery in the world’s second largest economy remains fragile. 

Economists had expected an unchanged reading.

Elsewhere, the euro fell to two-week lows against the yen, with EUR/JPYdown 0.65% to 131.96, as concerns over fresh political instability in Italy weighed.

Silvio Berlusconi announced Saturday that he was pulling his ministers out of Prime Minister Enrico Letta’s coalition government and called for fresh elections to be held.

Read More

Forex - Euro slips lower vs. dollar

The euro slipped lower against the dollar on Monday as fresh political instability in Italy weighed, while the risk of a looming U.S. government shutdown also hurt market sentiment.

EUR/USD hit 1.3478 during late Asian trade, the session low; the pair subsequently consolidated at 1.3489, sliding 0.24%.

The pair was likely to find support at 1.3460, the low of September 25 and resistance at 1.3536, the high of the same day.

The euro came under pressure after Silvio Berlusconi announced Saturday that he was pulling his ministers out of Prime Minister Enrico Letta’s coalition government and called for fresh elections to be held.

Meanwhile, political wrangling in Washington over funding for President Barack Obama’s healthcare law continued over the weekend, fuelling fears over the prospect for a government shutdown 

Congress must pass a short-term budget by midnight on Monday in order to keep the government open.

Republican opposition to the funding of the Affordable Care Act has created a standoff with the White House and the Democratic-controlled Senate, which have both said they will not support any budget bill that defunds or amends Obamacare.

Elsewhere, the euro was weaker against the pound and the yen, withEUR/GBP down 0.32% to 0.8350 and EUR/JPY losing 0.58% to trade at 132.06.

Also Monday, data showed that China’s HSBC manufacturing index was revised down to 50.2 from an initial reading of 51.2, indicating the recovery in the world’s second largest economy remains fragile. Economists had expected an unchanged reading.

Read More

GBP/USD Outlook – Sep. 30-Oct. 4

GBP/USD continues to move higher and broke through the 1.61 line this week. The pair closed the week at 1.6136. This week’s key events are Manufacturing, Services and Construction PMIs. Here is an outlook of the events and an updated technical analysis for GBP/USD.

The pound continues to shine, although this week’s UK numbers were uneventful. In the US, Unemployment Claims looked sharp, but key manufacturing and housing data disappointed the markets and weighed on the greenback.

GBP/USD graph with support and resistance lines on it. Click to enlarge: 

1. Net Lending to Individuals: Monday, 8:30. An increase in lending reflects stronger consumer confidence and spending. The July reading dropped to 1.5 billion pounds, falling short of the estimate of 1.7 billion. The estimate for August stands at 1.6 billion.
2. Manufacturing PMI: Tuesday, 8:30. This PMI has been steadily rising and the index has been above the 50-point level, indicating expansion, for the past four releases. Little change is expected in the upcoming release, with an estimate of 57.5 points.
3. Halifax HPI: Wednesday, 2nd-4th. This housing inflation indicator provides a snapshot of the health of the UK housing sector. The index dropped to 0.4% in July, falling short of the estimate of 0.7%. The forecast for the August release stands at 0.6%.
4. Construction PMI: Wednesday, 8:30. Construction PMI has been on a steady upward rise, and hit 59.1 points in the August reading. The markets expect the rise to continue, with an estimate of 60.1 points.
5. Services PMI: Thursday, 8:30. This index continues to look sharp, and has been above the 60-point line for the past three readings. The markets are not expecting much change in the September release, with an estimate of 60.4 points.
6. 10-y Bond Auction: Thursday, Tentative. British 10-year bond yields have been rising, and the previous average yield came in at 2.98%. If this week’s auction produces an average yield above 3.0%, it will be the first time we’ve seen this in over two years.

Live chart of GBP/USD: 

GBP/USD Technical Analysis

GBP/USD opened the week at 1.6016. The pair dropped to a low of 1.5955, as 1.5936 (discussed last week) held firm. The pair then rebounded sharply, crossing above 1.61 as it touched a high of 1.6147. GBP/USD closed the week at 1.6136.

Technical lines from top to bottom:

We begin with resistance at 1.6694. This line saw some activity in June 2011, but has remained intact since then.

This is followed by 1.6475, which has held firm since August 2011. Next is 1.6343. This line was last breached when the pound dropped sharply in August 2011.

We next encounter resistance at 1.6247. This was a key resistance line in October and November 2012.

Next, 1.6125 had held firm since January, but as breached this week as the pound continues to hammer away at the US dollar. It starts the week as a weak support level, and could face strong pressure early in the week.

1.60, a key psychological barrier, continues to provide support. This line had remained intact since mid-January, when the pound went on a sharp slide that saw it fall below the 1.49 line. This line has some breathing room as the pair trades above the 1.61 line.

1.5936 saw a lot of activity in November 2012 and this past January.

1.5832 continues to provide the pair with support. It has some breathing room as GBP/USD trades at higher levels.

1.5752 was breached earlier in the month by the surging pound, and has strengthened as a support level.

1.5648 was an important resistance line since June, but as reverted to a support role since early September as the pound has rallied sharply against the retreating US dollar.

The final line for now is 1.5550, which continues to provide GBP/USD with strong support. This line last saw action in mid-June.

I am bullish on GBP/USD.

The pound enjoyed a super September, gaining about six cents against the retreating US dollar. Will the rally continue? UK PMIs have looked very sharp over the past few months, and strong releases this week could give the pound a boost. The US could face a government shutdown this week as the Democrats and Republicans play political hardball, and how this event plays itself out could have a major impact on the currency markets.

Read More