EU Morning Report

Operation Twist for the Fed's monetary policy

  • The US dollar rallied against its major counterparts after the Federal Reserve monetary policy decision spurred a heightened demand for the safe haven currency. The Fed decided to keep interest rates unchanged at 0-0.25% and announced a new measure of monetary stimulus, a policy called Operation Twist. With this policy, the Fed will purchase 400 billion of Treasury bonds with maturity of six years and sell Treasuries with maturity of three years. Even though few investors expected a third round of quantitative easing, the new policy raised doubts whether it is enough to support the weak US economy. World equities sharply dropped as the Fed's move raised risk aversion in the market. On the following statement, the Fed's tone was dovish expressing concerns about the weak growth and stubbornly high unemployment level. Against the Swiss franc, the dollar edged higher to a five month high at 0.9038 from 0.8856. Against the Japanese yen, the dollar rose to 76.96 from 76.11.
  • The euro plummeted against a basket of currencies dollar after the announcement of Operation Twist by the Federal Reserve. Yesterday, Greece outlined the new austerity measures to secure the next tranche of financial aid from the International Monetary Fund. Against the US dollar, the euro shed 2% falling to 1.3527 from 1.3797. Versus the Japanese yen, the euro dropped to 103.65 from 105.34.
  • The Australian dollar slid against the dollar as the Fed's move dampened investors' risk appetite. The pair shed 2.9% yesterday falling to 0.9992 from 1.0291. The British Pound also declined versus the greenback to 1.5447 from 1.5741.
  • Oil prices ticked lower to 84.05 dollars a barrel from 87.96. Gold slid to 1772.10 dollars an ounce from 1816.45. Silver also edged lower to 39.23 dollars an ounce from 40.66.

Currencies to watch out for: EURUSD & USDJPY  

  • § The EURUSD pivot point is at 1.3610 with a preference to enter Short positions at 1.3600
  • § The USDJPY pivot point is at 76.95 with a preference to enter Short positions at 76.95
  • § The OIL pivot point is at 85.25 with a preference to enter Short positions at 85.25
  • § The Gold pivot point is at 1810 with a preference to enter Short positions at 1810                          

Today's calendar and market movers:

  • § Europe Purchasing Manager Index-Services in September is forecast to fall to 51
  • § Europe Purchasing Manager Index- Manufacturing in September is forecast to fall to 48.5
  • § US Initial Jobless Claims is forecast to fall to 420K

Equity Markets:                                               

US equities were negative on Wednesday with the S&P500 trading down -2.94% and the DJIA down -2.49%. The European bourses were also negative with the FTSE trading down -1.40%, the DAX down -2.47% and the CAC down -1.62%. The NIKKEI and the HSI at the time of writing are trading down -2.04% and -4.08% respectively.

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