Category: US & Canada

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Bernanke Speech Makes Detailed Case for Fed Action – NYTimes.com

The Fed Chairman hinted at further measures to stimulate employment but is still playing his cards close to his chest as to when and how much:

“It is important to achieve further progress, particularly in the labor market,” Mr. Bernanke said. “Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

via Bernanke Speech Makes Detailed Case for Fed Action – NYTimes.com.

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Forex: Euro, Pound Sterling, Canadian Loonie, Australian Dollar and Japanese Yen

A monthly chart shows the euro testing long-term support at $1.20 against the greenback. Recovery above the steeply descending trendline would indicate another test of the upper triangle border, while failure of support would indicate long-term re-alignment. Indications, from president Mario Draghi, that the ECB will further expand its balance sheet explains euro weakness, but similar moves by the Fed would restore the status quo.

Euro/USD Monthly

On the daily chart, the Euro is headed for resistance at $1.275. The primary trend remains downward, but breach of the descending trendline indicates it is losing momentum. Failure of support at $1.240 and penetration of the rising trendline, however, would indicate another test of primary support at $1.205.

Euro/USD

Pound Sterling formed a descending triangle, testing support at €1.255 against the Euro. Failure of support would indicate a test of €1.225. 63-Day Twiggs Momentum is falling, but continues to indicate a primary up-trend.

Pound Sterling/Euro

* Target calculation: 1.255 – ( 1.285 – 1.255 ) = 1.225

Canada’s Loonie is consolidating in a narrow band below resistance against the greenback at $1.02.  Breakout above resistance at $1.02 would indicate an advance to $1.06, while reversal below parity would test $0.95/$0.96.

Canadian Loonie/Aussie Dollar

The Aussie Dollar is retracing to find support against the greenback, with $1.02 a likely target. Respect would suggest another test of $1.08. Narrow oscillation of 63-day Twiggs Momentum around zero would suggest a ranging market.

Aussie Dollar/USD

Australian Dollar appreciation against the yen is slowing. Reversal below ¥79.50 would indicate another test of primary support at ¥74.

US Dollar/Japanese Yen

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Canada: TSX60 buying pressure

The TSX 60 is testing resistance at 700 on the weekly chart. Penetration of the descending trendline suggests that a bottom is forming. Oscillation of 13-week Twiggs Money Flow above zero indicates buying pressure. Follow-through above 700 would test primary resistance at 730. Reversal below 680 is unlikely, but would re-test primary support at 640.

TSX 60 Index

* Target calculation: 730 + ( 730 – 640 ) = 820

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S&P 500 and Nasdaq bearish divergence

The S&P 500 Index continues to test resistance at 1420. Bearish divergence on 21-day Twiggs Money Flow warns of medium-term selling pressure. Expect a test of the lower trend channel; reversal below 1380 would indicate a correction. Breakout above 1420, however, would signal an advance to the 2007 high at 1560*.

S&P 500 Index

* Target calculation: 1420 + ( 1420 – 1280 ) = 1560

The Nasdaq 100 is similarly testing resistance at 2800 on the weekly chart. Breakout would offer a target of 3150*. The 63-day Twiggs Momentum trough above zero indicates continuation of the primary up-trend, but reversal below zero would warn of a primary down-trend.

Nasdaq 100 Index

* Target calculation: 2800 + ( 2800 – 2450 ) = 3150

Fedex is testing support at $88, neckline of the March/April double top. Failure of support would suggest continuation of the primary down-trend; confirmed if support at $84 is broken.

Fedex

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BOB JANJUAH: Time For Action, Warning Over – Business Insider

Sam Ro of Business Insider reports on Nomura strategist Bob Janjuah’s August 21 note:

“I now think the correct thing to do – as I also said in April and June – is to prepare for a serious risk-off phase between August and November,” [Janjuah] reiterated. “Over the August to November period I am looking for the S&P500 to trade off down from around 1400…by 20% to 25%…to trade at or below the lows of 2011.”

He argues that the key drivers of this sell-off will be disappointment at next week’s Federal Reserve Jackson Hole speech and realization that the ECB won’t be be able to deliver on their promises.

via BOB JANJUAH: Time For Action, Warning Over – Business Insider.

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When will the Fed QE?

Is the Fed likely to introduce new asset purchases before or after the November election? Peter Boockvar at The Big Picture writes:

Bottom line, of the 10 voting FOMC members, 8 are doves so it will always be the case that “many” are ready for more QE if need be. The hawks are few and far between. I stick to my belief that more QE is coming on Sept 13th as the Oct meeting is too close to the election and Bernanke won’t act in Dec if Romney wins. This could be his last chance for a while and Ben still seems to believe in the pixie dust of QE.

CNBC reports Nomura’s Bob Janjuah is predicting more quantitative easing from the Federal Reserve in December.

Those hoping for a big bazooka from the Fed or the European Central Bank before December will be disappointed, [Janjuah] said.

My view is that September is too soon: the Fed is likely to hold off until after the election unless the situation gets desperate. And December is too soon afterwards. Early 2013 seems a safer bet.

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Money Fund Reforms Seen Harming Alternative to Banks

SEC attempts to reform the money market industry are running into opposition from corporate treasurers. Maria Sapan from Securities Technology Monitor writes:

The Securities and Exchange Commission has proposed rules that would revamp the $2.6 trillion U.S. money market fund industry, arguing it remains a risk to the financial system. Last month, [Thomas C. Deas, Jr., the treasurer of chemical company FMC Corp and chairman of the National Association of Corporate Treasurers] testified before a House subcommittee that the reforms – such as floating the funds’ net asset value or imposing new capital requirements – would “have a significant negative impact on the ongoing viability of these funds, and also adversely affect the corporate commercial paper market.”

Money market funds are effectively involved in maturity transformation — borrowing short and lending long — which is a function of banks. Maturity transformation is vulnerable to bank runs in times of uncertainty, where depositors demand repayment and borrowers are unable to comply because of liquidity pressures. My view is that if you want to perform the functions of a bank, you need to be registered as a bank, with the same reserve requirements as other banks, and supervised by the Fed. Avoiding these requirements may provide cheaper sources of credit to large corporates, but at the cost of increased risk to the entire economy.

via Money Fund Reforms Seen Harming Alternative to Banks.

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Fed Minutes Suggest Action Likely – WSJ.com

By JON HILSENRATH And KRISTINA PETERSON

The Federal Reserve sent its strongest signal yet that it is preparing to take new steps to bolster the recovery, saying that measures would be needed fairly soon unless economic growth picks up substantially.

The statement was included in minutes released Wednesday from the Fed’s July 31-Aug. 1 policy meeting. The minutes also indicated that a new round of bond buying, known as quantitative easing, was high on its list of options.

via Fed Minutes Suggest Action Likely – WSJ.com.

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Canada: TSX60 rising

The TSX 60 broke resistance at 685 on the weekly chart, penetrating the descending trendline to signal that a bottom is forming. Bullish divergence on 63-day Twiggs Momentum suggests reversal to an up-trend. Breakout above the 2012 high of 730 would confirm.

TSX 60 Index

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S&P 500 and Nasdaq test key resistance

On the monthly chart, the S&P 500 Index is testing resistance at 1420. A trough above zero on 13-week Twiggs Money Flow indicates buying pressure. Breakout above 1420 would signal an advance to the 2007 high at 1560*.

S&P 500 Index

* Target calculation: 1420 + ( 1420 – 1280 ) = 1560

The Nasdaq 100 is similarly testing resistance at 2800 on the weekly chart. Breakout would offer a target of 3150*. A 63-day Twiggs Momentum trough above zero indicates continuation of the primary up-trend.

Nasdaq 100 Index

* Target calculation: 2800 + ( 2800 – 2450 ) = 3150

10-Year Treasury Yields recovered above initial resistance at 1.70 percent. Expect an attempt at the primary level of 2.40 percent. The Fed purchased $5 billion of Treasury notes/bonds (nominal) and MBS last week; so they are not the cause of the rise. Investors appear to be flowing out of Treasuries and driving stocks higher.

10-Year Treasury Yields

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