EUR/USD Could Target 1.4157 Despite Diminishing Fed Cut Expectations
Wholesale Sales (AUG) (12:30 GMT, 08:30 EST)
Expected: 0.2%
Previous: 0.1%
Wholesale Inventories (AUG) (12:30 GMT, 08:30 EST)
Expected: 0.3%
Previous: 0.2%
How Will The Markets React?
Wholesale sales and inventories in the US are expected to edge higher during the month of August, with the former estimated to rise a mild 0.2 percent and the later forecasted to gain 0.3 percent - in line with stronger inventory readings in the ISM non-manufacturing figure for the same period. These wholesale figures could bode well for this Friday's US retail sales report, as traders ponder anxiously whether consumer spending growth in the country will slow substantially as the housing recession wears on. Furthermore, consumer confidence has fallen dramatically in the wake of the volatility witnessed in the equity markets in August and after oil prices hit a record high in late September. Nevertheless, businesses and consumer alike appear to be undeterred thus far, as spending figures have remained relatively robust, though this has come on the retail side via heavy discounting, which could hurt profit margins in the long run. Any pick up in the wholesale sales figure may be construed as being bullish for the equity markets in particular, while EUR/USD is likely to be fairly unresponsive to the news as traders await the bigger event risk looming on the horizon later in the week (retail sales).
Bonds - 10-Year Treasury Note Futures
Treasury note futures pushed below last Friday's lows following the release of the FOMC minutes from the September 18th meeting, as traders cut down their expectations for a rate cut on October 31st. The contracts are currently trading below their 50 SMA, though support at the lows near 108-12/18 could block sharp moves down towards the before 200 SMA at 107-25. Regardless, if bulls continue to rule the equity markets, Treasuries could fall further. The US wholesale sales/inventories release offers mild event risk, with improvements likely to add to bid tones in the Dow and sell-offs in Treasuries.
FX - EUR/USD
The EUR/USD pair has been weighed down over the past week amidst the release of stronger-than-expected US non-farm payrolls and signs that the European Central Bank had moved from a hawkish stance to a far more neutral bias. During Tuesday's late Tokyo trading session, the pair dropped down to test the 38.2 percent retracement level of the rally from 1.3568 - 1.4282 at 1.4011, but subsequently recovered throughout the day to take on 1.4100. This came despite the release of the minutes from the FOMC's September 18th meeting, which signaled the some members within the committee remain concerned about inflation risks, which could prevent the central bank from cutting again on October 31st. Nevertheless, similar to the equity markets, traders appear to be hesitant to acknowledge the probabilities that the Fed will not cut rates until they hear the actual news or acquire additional evidence. The release of US wholesale sales/inventories may be only a blip on the radar and provide a bit of strength for the US Dollar on a short-term basis if the figures show gains. However, disappointing data would likely make a greater impact on the pair, as EUR/USD looks primed to take on 1.4157.
Equities - Dow Jones Industrial Average
The Dow Jones Industrial Average continues to reach for new highs, closing at a fresh record of 14,164.53 on Tuesday. The daily charts show a tight ascending channel formation that leaves the index likely to target a break above 14,200. However, equities face event risk this week as this week marks the start of Q3 earnings releases, while Wednesday's wholesale sales/inventories could add to the bullish sentiment in the markets. Both figures are anticipated to improve, boding well for Friday's retail sales report. Nevertheless, while the Dow rallied on the release of the minutes from the September 18th FOMC meeting, the actual commentary within the minutes doesn't necessarily warrant such strong gains. Indeed, there are indications that many of the policy makers remain concerned about upside inflation risks, and given the major price increases seen in energy and food lately, the central bank could easily opt to not cut rates again on October 31st. Such a move has the potential to send equities tumbling, but it appears that until traders actually see the next policy decision announced, they will continue to ride the wave of optimism.
