SEP 28TH, 2014 www.proinfinityltd.com FOREX TRADING DAILY NEWSLETTER Pound Extends Gain as Traders Bet 6 Percent Decline Is Excessive 15 Minutes’ Charts Trade Date: 27 OCT, 2014 Forex Open High Low Close EURUSD 1.2662 1.2708 1.2650 1.2693 GBPUSD 1.6074 1.6132 1.6071 1.6113 Information contained in these pages is for reference only and does not constitute any professional advice, opinion or guarantee. This should not be regarded as an offer, recommendation or solicitation to buy or sell any investment referred to herein. We assume no responsibility for any losses or damages howsoever incurred or suffered by anyone making use of this information directly or indirectly. 1 Tue 28 Oct, 2014 FOREX NEWS www.proinfinityltd.com Oct 28, 2014 12:36 AM GMT+0800 Pound Extends Gain as Traders Bet 6 Percent Decline Is Excessive By Eshe Nelson, Bloomberg The pound rose versus the dollar, extending a gain from the end of last week, as a gauge of retail sales exceeded analysts’ forecasts and trading patterns suggested the U.K. currency was due to halt its downward trend. Sterling is poised to rally versus the U.S. currency after forming a chart pattern called an inverted head and shoulders, according to Brown Brothers Harriman & Co. The pound has declined more than 6 percent since reaching a five-year high in July. U.K. government bonds rose before the Debt Management Office sells gilts due in 2068 via banks this week. Bank of England policy maker Nemat Shafik is scheduled to speak in London today. “The pound is going to lift over the course of the week given opportunities for fairly normal trading conditions,” said Harry Adams, the head of trading at Argentex LLP, a currency advisory company in London. The decline since July “is a big move. It could be a question of it being too far, too fast, so there will be a little bit of a relief rally, up to mid-$1.63.” The pound rose 0.3 percent to $1.6134 as of 4:30 p.m. London time after gaining 0.4 percent on Oct. 24. It dropped to $1.5875 on Oct. 15, the lowest since November, after climbing as high as $1.7192 in July. Sterling was little changed at 78.81 pence per euro. An index of U.K. retail sales was at 31 in October, the same as the previous month, the Confederation of British Industry said today. The median estimate of economists in a Bloomberg News survey was for a decline to 25. Retracement Target A rally in the pound would target $1.6360, which is “just shy” of the 38.2 percent Fibonacci retracement of the currency’s drop since reaching a five-year high in July, Brown Brothers Harriman analysts led by Marc Chandler in New York wrote in an emailed client note. In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index. Sterling has fallen 0.6 percent over the past month, the worst performer after Norway’s krone, according to Bloomberg CorrelationWeighted Indexes, which track 10 developed-nation currencies. The pound weakened as traders pushed back bets on when interest rates would begin to increase. Forward contracts based on the sterling overnight interbank average, or Sonia, showed investors have pushed back bets on a 25 basis-point increase in U.K. borrowing costs to beyond September, from February just two months ago. Starting to increase the U.K.’s benchmark rate now will increase probability that pace can be kept “gradual and limited,” Bank of England official Ian McCafferty wrote in the Sunday Times of London yesterday. ‘Minimum Disruption’ “Ensuring we act in good time and move rates slowly, to allow consumers and businesses to adapt with minimum disruption, is, I believe, the best way of supporting and sustaining the economic expansion,” he wrote. McCafferty was one of two policy makers who voted for an increase in borrowing costs at the central bank’s most recent meeting. The DMO will sell 4.5 billion pounds of July 2068 gilts this week, analysts at UBS AG, including London-based head of U.K. rates strategy John Wraith, wrote in a note to clients today. These securities performed strongly after the previous syndicated reopening in October 2013 and there is a “solid chance of history repeating,” they wrote. The 10-year gilt yield fell three basis points, or 0.03 percentage point, to 2.20 percent. The 2.75 percent bond due in September 2024 rose 0.24, or 2.40 pounds per 1,000pound face amount, to 104.815. Gilts are the best-performing sovereign securities tracked by Bloomberg World Bond Indexes in the past month, having risen 1.8 percent through Oct. 24. Euro-area government securities were little changed, while U.S. Treasuries gained 1.7 percent. 01 Mon Oct 27, 2014 4:02pm EDT Euro up on U.S. data but stymied by German business sentiment By Daniel Bases, Reuters NEW YORK, Oct 27 - The euro recovered lost ground in limited trade on Monday, boosted by weaker-than-expected U.S. housing data that softened a blow to the currency from news that German business European banks issued on Sunday but morale fell. widely leaked at the end of last week. The German data took the shine off better- U.S. September pending home sales gained than-expected stress-test results for (Continued...) Information contained in these pages is for reference only and does not constitute any professional advice, opinion or guarantee. 2 Tue 28 Oct, 2014 FOREX NEWS 0.3 percent, according to the National Association of Realtors, versus a 0.5 percent gain forecast in a Reuters poll of economists. "The dollar slipped right after a little weaker-than-expected housing data and with a lack of other risk events today it was enough to push the euro back above $1.27," said John Doyle, director of markets at Washington, D.C-based Tempus Inc. The euro traded at $1.2706, up 0.28 percent on the day . It gained 1 percent to 9.2803 Swedish crowns, the highest since early July. Expectations are Sweden's central bank will cut interest rates to a record low to ward off the threat of deflation. Market activity was subdued ahead of this week's Federal Reserve monetary policy meeting. The U.S. central bank is expected to end its quantitative easing program and reinforce its stated willingness to wait a long while before raising interest rates. www.proinfinityltd.com German business sentiment in October fell for a sixth straight month, according to Munich-based Ifo economic think-tank. The index fell to 103.2 from 104.7 the prior month for the weakest reading since December 2012.. The euro zone's biggest economy had steamed ahead in the first quarter but suffered a 0.2 percent contraction in the second quarter and concern is growing that Germany will slide into a recession. The Ifo data cut into the euro's gains against the U.S. dollar after better-than-expected results from the European Central Bank's stress tests. Twenty-five of the euro zone's 130 top banks failed the tests at the end of last year but most have since repaired their finances, the central bank said on Sunday. Adam Myers, European head of currency strategy at Credit Agricole in London, said he expected the euro to weaken before the Fed policy meeting set to start on Tuesday. "The Fed has been far more cautious recently because they don't want a stronger dollar, but even so, with the market interpreting the ECB and the European data the way they are at the moment ... the risk is that heading into the Fed, into Wednesday evening, we're going to break through last week's low." The dollar sank 0.38 percent to 107.73 yen, just off the session low 107.61 yen, underscoring a generally weak performance by the greenback against its major rivals. Oct. 27, 2014 4:37 p.m. ET Dollar Drops as Market Readies for Fed Message Greenback Fell 0.4% Versus the Yen; Euro and British Pound Both Increased 0.4% Against Dollar 02 By James Ramage, The Wall Street Journal The dollar fell against its major rivals on Monday as investors prepared for the Federal Reserve’s policy meeting, which concludes later this week. The greenback fell 0.4% versus the yen to ¥107.78, while the euro and British pound both increased 0.3% against the dollar, to $1.2704 and $1.6132, respectively. The coming Federal Open Market Committee meeting is focusing investors on monetary policy at a time of lower U.S. bond yields and a generally weaker dollar than during the central bank’s last assembly in September, said Nick Bennenbroek, head of currency strategy at Wells Fargo Securities, LLC. At the last FOMC meeting, the dollar bought more than ¥108 and the 10-year Treasury note traded around 2.60%; in late-afternoon trade Monday, the 10year note hovered near 2.25%. Concerns about stagnating growth and extremely low inflation in the world’s largest economies elicited notes of caution from the Fed in the most recent minutes, suggesting the central bank would take its time in raising interest rates from near zero. The market anticipates the Fed will be among the first major economies to raise rates, sometime shortly after mid2015. Higher interest rates would make the dollar more attractive to investors, as it would boost returns on assets denominated in the currency. While many in the market anticipate the central bank will announce on Wednesday the closure of its massive bond-buying program, they expect no shift in the central bank’s cautious tone. Ending its large stimulus program would support the dollar, but failing to move forward market expectations for the interest-rate hike would likely drag the U.S. currency lower. “We’re seeing repositioning and prepositioning, as the markets prepare for the FOMC message,” Mr. Bennenbroek said. The market had been heavily skewed toward a stronger dollar, so the traders wishing to scale back those positions would have led to selling the dollar and foreigncurrency strength on Monday, he said. The U.S. currency weakened the most during the Americas session after pending sales of existing homes rose 0.3% to an index level of 105 in September from August. The National Association of Realtors data, generally considered less of a driver in the currency market, remained above an average level of contract activity, yet below economists’ expectations of a rise of 1% for September, pointing to a bumpy recovery the U.S. housing market. In other trade, the dollar climbed 2% against the Brazilian real to BRL2.5217, the highest since Dec. 9, 2008, after Dilma Rousseff was re-elected president of Brazil. Many in the markets felt Ms. Rousseff is unwilling to address the country’s competitive and structural shortcomings. Information contained in these pages is for reference only and does not constitute any professional advice, opinion or guarantee. 3 Tue 28 Oct, 2014 TOP STORIES www.proinfinityltd.com Oct 28, 2014 7:00 AM GMT+0800 Draghi May Help Europe’s Rich Get Richer By Jennifer Ryan, Bloomberg Photographer: Andrew Harrer/Bloomberg Mario Draghi, president of the European Central Bank speaks during a news conference at the International Monetary Committeeand World Bank Group Annual Meetings in Washington, on Oct. 11, 2014. European Central Bank President Mario Draghi, fighting a deflation threat in the euro region, may need to confront a concern more familiar to Americans: income inequality. With interest rates almost at zero, Draghi is moving into asset purchases to lift inflation to the ECB’s target. The more he nears the kind of tools deployed by the Federal Reserve, the Bank of England and the Bank of Japan, the more he risks making the rich richer, said economists including Nobel laureate Joseph Stiglitz. In the U.S., the gap is rising between the incomes of the wealthy, whose financial holdings become more valuable via central bank purchases, and the poor. While monetary authorities’ foray into bondbuying is intended to stabilize economic conditions and underpin a real recovery, policy makers and economists are increasingly asking whether one cost may be wider income gaps -- in Europe as well as the U.S. “The more you use these unusual, even unprecedented monetary tools, the greater is the possibility of unintended consequences, of which contributing to inequality is one,” said William White, former head of the Bank for International Settlements’ monetary and economic department. “If you have all these underlying problems of too much debt and a broken banking system, to say that we can use monetary policy to deal with underlying real structural problems is a dangerous illusion.” The divide between rich and poor became part of a widespread public debate following the publication in English this year of Thomas Piketty’s “Capital in the Twenty-First Century.” He posited that capitalism may permit the wealthy to pull ahead of the rest of society at ever-faster rates. Flashing Red Olivier Blanchard, chief economist for the International Monetary Fund, said in April that “how inequality affects both the macro economy and the design of macroeconomic policy will likely be increasingly important items on our agenda.” BOE Chief Economist Andrew Haldane said in May that it’s “appeared on central banks’ radar during the course of the crisis, sometimes flashing red.” The U.S. has the third-highest level of income disparity among 28 countries in the developed world, after Turkey and Chile, according to the most recent figures from the Paris-based OECD. The so-called Gini coefficient for the U.S. was 0.39 in 2011, the OECD found. No euro country exceeded that; the highest for the region was Spain at 0.34. Federal Reserve Chair Janet Yellen said Oct. 17 that she was “greatly” concerned by what she said was the biggest increase in disparities of wealth and incomes since the 19th century. Historical Values “It is appropriate to ask whether this trend is compatible with values rooted in our nation’s history,” Yellen said in a speech in Boston, without referencing monetary policy. A month earlier, she noted that the unemployment rate was 8.1 percent when the purchase program began -- it’s now 5.9 percent -- and praised the “cumulative progress toward maximum employment” since then. The Fed plans to announce the end of its asset-buying program, known as quantitative easing, or QE, this week at a meeting starting today. For both the Fed and the ECB, an improving economy is the most important goal and inequality issues shouldn’t overshadow that, White said. “The fact that it’s good for some people more than others is not an argument for saying don’t do it,” said White, now chairman of the economic and development review committee of the Organization for Economic Cooperation and Development. “Poor people now are relatively poor vis-avis the rich, but on balance everyone is better off than they would have been if the central banks didn’t do what they did.” Watching Consequences The ECB is sensitive to the links between central banking and income distribution. “We need to be aware that there are distributional consequences of our actions – - and these may well be particularly significant at times of exceptionally low interest rates and non-standard measures,” Executive Board Member Yves Mersch told a Zurich audience on Oct. 17. While traditional moves, such as changing interest rates, may not affect income distribution, non-conventional tools, “in particular largescale asset purchases, seem to widen income inequality.” Draghi hasn’t yet put the issue at the center of a policy speech, though his presentation at a meeting of central bankers in Jackson Hole, Wyoming, urged governments to accept their role in introducing reforms to shore up economies. With unemployment hovering at 11.5 percent in the 18-nation currency region, Europeans who don’t hold the assets that get an immediate boost from the ECB’s (Continued...) 03 Information contained in these pages is for reference only and does not constitute any professional advice, opinion or guarantee. 4 Tue 28 Oct, 2014 TOP STORIES actions may find themselves left out. The BOE estimated that its 325 billion pounds ($524 billion) of purchases through May 2012 increased U.K. household wealth by more than 600 billion pounds. Upper Half That would equate to a boost of about 10,000 pounds per person if financial wealth were evenly distributed across the population. But it’s not: the central bank says that the top 5 percent of British households hold around 40 percent of stocks, bonds, real estate and the like. In Europe, “the experience would be pretty much the same as the U.S. experience,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Home prices will rise and financial-asset valuations will rise so those people who tend to have more of those, the upper half of the income distribution, will tend to benefit more.” The ECB has already promised to expand its balance sheet by as much as 1 trillion euros ( $1.3 trillion) by buying privatesector securities. The goal is to get inflation, now at just 0.3 percent, closer to its target of just below 2 percent. The bank settled 1.7 billion euros of covered-bond purchases last week as part of the economy-boosting program. Balance Sheet More than half of respondents in a Bloomberg News survey conducted Oct. 39 say the ECB will have to start large-scale government bond buying. Its balance sheet has shrunk by about a third since 2012, www.proinfinityltd.com depriving the economy of the cash needed to stoke a pickup in inflation. “Our outlook isn’t particularly bright on the European economy,” said Roberto Perli, a partner at Cornerstone Macro LP in Washington and a former associate director of monetary affairs at the Fed. “They want to give the current strategy a chance to work. It won’t be very effective, and the odds are about even that they’ll do QE. Unless the inflation expectations and growth outlook improves, the ECB has no choice.” That chimes with the views of Jon Frost and Ayako Saiki, economists at the Dutch central bank. They published a paper in May on inequality as a side effect of unconventional easing in Japan, addressing an issue that they say “has been largely ignored” in research. Worse Outcomes “Unconventional monetary policies likely played an important role in preventing much worse economic outcomes, which would have worsened unemployment and poverty,” they said in an e-mailed response to questions and speaking in a personal capacity. Their study didn’t consider the special characteristics of other economies, such as the U.S. or Europe. Some central bankers, such as St. Louis Fed President James Bullard, say QE doesn’t worsen inequality. Older asset owners who see the value of their equity investments rise will actually achieve “normal prices” once they sell their shares and pass them on to the next generation, he said in June. That suggests QE “had no medium-term implications for the U.S. income or wealth distribution -- it is only as good or bad as it was before the crisis,” Bullard said in a speech in New York. While QE lifts stock prices, “I would stop short of saying that this has made wealth inequality worse.” Similarly, Deputy BOE Governor Ben Broadbent said in an Oct. 23 speech that increases in financial valuations don’t necessarily translate into changes in income distribution. ‘Best Way’ The ECB said in a statement that getting inflation close to, while still below, 2 percent “is the best way within our mandate that we can help promote economic recovery, which helps everyone.” The ECB, unlike the Fed, has no statutory mandate to keep unemployment low, though neither is charged with increasing income equality or other social goods. That complicates banks’ ability to account for the impact on wealth distribution when they consider a change in policy. For Stiglitz, the risks to social cohesion from a growing gap between rich and poor should encourage the ECB to heap pressure on regional governments to do more to get the economy moving and lift prices. “In the context of Europe, the policy mix is going to continue to have adverse political effects, movements to extremist parties, secessionist movements,” he said. “It may be that the worsening inequality may increase resentment.” 04 Tue, Oct 28 2014, 00:38 GMT | FXStreet FOMC: Tapering to be completed, key phrases to be maintained - RBS Bali - According to RBS FX Strategists, at Wed's FOMC, tapering is expected to be completed, and the “considerable time” and “significant underutilization of labor resources” language will be maintained. Key Quotes "One of the primary reasons for the recent pause in the USD rally has been a reassessment of FOMC expectations. While real activity data has yet to show signs of meaningful slowing, renewed global growth concerns, higher asset market volatility, and individual FOMC members’ commentary about the strength of the USD have raised concern that the Fed will change its tone about risks to the outlook and future monetary tightening." "The October FOMC meeting this week will indicate how the FOMC consensus view has changed, if at all. Next Wednesday’s decision does not include new forecasts or a press conference, perhaps limiting the scope of changes the FOMC will be willing to make – we expect tapering will be completed, and the “considerable time” and “significant underutilization of labor resources” language will be maintained." "Few notable changes in the statement language may imply that the FOMC’s broader view of the outlook has not shifted significantly relative to September, consistent with comments Chair Yellen reportedly made at a private event two weeks ago, which could lift the USD. 3Q GDP growth above 3.0% q/q annualized and a lack of meaningful slowdown in the PCE deflator, similar to the September CPI report, may also prove supportive." Information contained in these pages is for reference only and does not constitute any professional advice, opinion or guarantee. 5