Euro Breaks 1.45 as Equity Markets Find Support; Hurricane Irene Downgraded to Tropical Storm
Risk aversion seems to have leveled-off in the asset markets as equities found support during the Asian session. The Federal Reserve Chairman (Bernanke) gave his speech in Jackson Hole on Friday and Hurricane Irene caused less damage than some had anticipated, so there were no major headlines to spook investors. Bernanke calmed markets by saying that growth will show signs of a firm recovery by the end of 2011 and that the Fed still has the ability to enact policy measures if this is not the case.
Bernanke also said that the next FOMC meeting would be a two day meeting, (typically the meetings last one day). He said that this will allow the FOMC to have a broader discussion on the tools available to make monetary policy more accommodative. Bernanke did not hint at another round of quantitative easing but he essentially said that all options are still open, and this was viewed favorably by equity markets.
Previous speculation that Hurricane Irene would cause major damage in New York City was also unfounded, and the hurricane was later downgraded to a tropical storm. The passing of these event risks has pushed US stock futures higher, with S & P 500 trading up by 1.2%. The EUR/USD is also moving up, at 1.4470-1.4490 while the USD/JPY remains heavy at 76.60-76.80.
The Swiss National Bank is scheduled to show its weekly update for the value of commercial bank sight deposits held by the SNB. The central bank’s goal is to raise these deposits to 200 billion Swiss Francs, as a means for bringing down the value of the country’s currency. Markets will watch this update to gauge the level of progress the SNB has made in this area, as last week’s figure was 136.6 billion Francs. If markets see some headway made toward the SNB goal, the Franc is likely to see some selling pressure.
In Japan, the Finance Minister (Noda) was elected as the leader of the DPJ political party and after the current Prime Minister resigns, Noda will assume that position. This is significant for financial markets because Noda will become the sixth Japanese Prime Minister in the last five years and the political instability created by these constant regime changes was cited as one of the reasons Moody’s chose to downgrade the Japanese credit rating.
The EUR/USD is breaking through the hourly triple top resistance that came in near the key psychological 1.45 level. The break is significant for the longer term because if does end the succession of lower highs that we have been seeing on the daily charts since the beginning of May. Support has now moved up to 1.4330 and this is the key area to watch on the downside. Buy a bounce here but keep stops tight because a break of this level would take pressure off of the topside in the short term and target levels 80 points lower. Next resistance comes in at 1.4580, followed by 1.47.