FXstreet.com (Barcelona) - Following the long weekend in US
markets, closed Monday due to the Labor Day holiday, Asian
investors set a mild risk on climax in the FX land, with the Aussie
being the best performing currency together with the Euro, with the
latter trading as though ECB has everything in place to launch new
bond buying program. As per the latest moves, it appears the market
has pretty much priced in bond buys up to the 3 yrs curve.
Draghi gives further clues on bond buys plan
The focus remains on Europe where European Central Bank President
Mario Draghi said that purchases of sovereign bonds with a
maturity of up to 3-years could will not be considered as state aid
and would not breach the central bank mandate, Reuters reported
Monday citing a number of European lawmakers. Yields on 2y Italian,
Spanish, and Portuguese debt each fell over 10 bp in response.
As Gareth Berry, FX strategist at UBS, notes: "It's worth noting
that, although Draghi referred to the possibility of buying out to
three-years, other options are still on the table. He spoke of
buying bonds with maturities "of up to one year, two years, or even
three years", so clearly the details are yet to be decided.
Nonethless, Draghi still leaves plenty room for interpretation."
However, the desire to avoid accusations of monetary financing,
according to Mr. Berry, "will likely impose some upper limit on
which maturities are declared eligible, as will the need to
circumvent issues around the ECB's seniority." Until the question
of seniority is addressed, UBS strategist suspects "private-sector
bondholders are unlikely to see the ECB as a partner in the bond
markets, and this issue ultimately limits how euro-positive the
bond buying program can be."
Moody's puts the EU on negative outlook; maintains AA for
Ratings agency Moody's announced during the early going of the
Asian session it had downgraded the outlook to negative on the
European Union, while maintaining the AAA rating still intact for
now. According to Moody's: "Change to negative reflects negatives
outlook to AAA sovereign rating of key contributors to EU budget
like Germany, France, UK and Netherlands." Outlook may be back
to stable if key contributor countries are back to stable, Moody's
RBA shows some dovish elements; Aussie recovers some
The Australian dollar gained a mild bullish tone late in Asia,
after the RBA surprised no one leaving rates on hold at 3.50 per
cent. The language used was not as dovish as the market had feared
following the collapse of iron ore prices and China notable
slowdown, ergo, some Aussie shorts were caught on the wrong-footed,
with AUD/USD price rising above 1.0250.
"The statement still not showing firm signal of an intent to cut
again, though the statement does contain dovish elements" said
Australian economist Adam Carr on his twitter account.
Earlier on the session, the Aussie had retained its recent bearish
tone, making new weekly lows after Fortescue, Australia's third
largest miner, announced it had decided to cut staff, production
guidance and investment plans.
As reported by ABC News: "Fortescue Metals is delaying $US1.6
billion in expansion plans and cutting jobs, citing the recent
slump in iron ore prices. Australia's third biggest iron ore
producer has cut its near term expansion target from 155 million
tonnes of iron ore per year to 115 million tonnes."
In a side note, Australia saw the current account balance print a
-11,801M in 2Q vs -14,892M in 1Q. Expectations were for -12.2 bln
approximately. The contribution from Aus net exports rose to 0.3%,
below a 0.55% estimates.
Hot FX pairs to follow today - Aussie and Euro
From a technical perspective, Sean Lee, Founder at FXWW, notes
"AUD/USD bids are reported from the interbank market between
1.0220/30 and there is solid technical support around 1.0215/20
(see chart) which is both a 38.2% retracement (.9585/1.0620) and a
61.8% retracement (.9965/1.0620). Sell orders reported starting at
1.0280 so we should be in for another range trading session
The EUR/USD, which was captured in a narrow 40 pips range on US
thin holiday-mode markets, saw another spike in Asia following
yesterday's 1.2610 high, resulting on the spot rate to trade at a
new week high just 10 pips shy of last Friday's post Jackson Hole
peak at 1.2636. Draghi comments to EU lawmakers, mentioned above,
got leaked, leading to the recent bullish price action.
As Valeria Bednarik, Chief Analyst at Fxstreet.com, notes: "The
EUR/USD hourly chart shows price moving in a very tight range
hourly basis, leaving technical indicators flat yet in positive
territory. As updated earlier the 4 hours chart holds also a
positive tone as long as short term above the 1.2550 mark; however,
a clear break the 1.2630 area, past January low and daily highs and
lows congestion zone, to confirm a clearer development of the
upward dominant trend."
US data is the focus on the day ahead
For the day ahead in Europe, the calendar shows no real
market-moving events. In the UK, the PMI construction index will be
publshed at 8.30GMT, which may whipsaw the GBP/USD either way some
10 up to 30 pips depending on the divergence from the official
estimate. EU Producer price index comes next just 30 minute later,
however, with the market focus away from inflationary threats in
Europe, unlikely the event will offer much move in the Euro. Any
notable swing will most likely come on a headline by headline basis
and/or on large institutions buying/selling campaigns, aka
US data will be more interesting, with the focus of the day ahead
eyed at two versions of the same indicator. One is the Institute of
Supply Management (
) , " commonly referred to as the 'ISM' and is one of the most
widely watched indicators of the US economy" notes Adrian Foster,
Asian Research Analyst at Rabobanl. The second indicator is the
Markit Manufacturing PMI, which as Adrian explains, "since May 2012
has produced this new indicator, with the name's not quite as
catchy but it's a useful addition to the data offerings from the