The bullish run in the financial markets looks to have lost its momentum as fears over the state of global finances resurfaced. The US dollar stands to gain over its Canadian counterpart to commence the week’s exchanges today, fueling a bullish retracement that could likely hoist USDCAD price activity over the 61.8 level of the Fibonacci Retracement channel.
Though Asian stocks held their gains early today, equities across Europe opened lower on fears over Spain. As reported by CNBC, debt crisis anxieties resurfaced as thousands of protestors took to the streets in Spain and Portugal over the weekend to protest against public spending cuts. Spanish Prime Minister Mariano Rajoy is also looking to delay any request for aid, preferring an alternative strategy if possible, according to Reuters. Madrid is reported to be ready to unveil a further economic reform package later this month. However, European Central Bank policymaker Ewald Nowotny reminded the country that it needs to apply for a rescue package to qualify for the central bank’s bond-buying program.
Last Thursday, the Federal Reserve announced a new version of quantitative easing while declaring an extension of its low-rate policy to mid-2015. The Fed said it will buy $40 Billion of mortgage-backed securities per month in an attempt to foster a nascent recovery in the real estate market, adding a commitment to continue the asset purchases until it sees significant improvement in the labor market.
A report from the Financial Times however, argues that the central bank’s attempt to push aid into the heart of the US economy is being blunted by banks struggling to process mortgage applications fast enough, keeping rates on home loans elevated, according to the largest lenders. According to the article, QE3 was partly designed to ease further the cost of mortgages, but with banks reluctant to cut mortgage rates without the staff to process any increase in business, the impact will be limited by a dearth of loan officers. Privately, banks acknowledge that the standard time between agreeing a loan and it closing has risen from about a month to as much as three months.
Moreover, even Wells Fargo and JPMorgan, which are responsible for almost half the new loans, are still struggling to cope amid moving thousands of staff to the frontline of mortgage origination. Bank of America, meanwhile, has shied away from the opportunities of writing new loans, dramatically scaling back a business whose past missteps still plague the company. These lags in processing mortgage applications are seen to create a delay for the US property markets, until the banks or the Fed can come up with a workable solution.
Adding to a possible risk-off momentum today is the release from the Federal Reserve Bank of New York regarding the manufacturing sector in the state. Business conditions in New York are expected to remain weak during September, despite a slight improvement compared to last month. The Empire State Manufacturing Index is forecast to rise from -5.9 points in August to a rating of -1.9 for the month, according to the median estimate.
It is thereby expected for the refuge asset Greenback to take advantage of increased demand for safety. A buy bias is advised for the USD/CAD, albeit with price corrections especially with an anticipated rebound in Canadian Foreign Securities Purchases.
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