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EUR/USD Awaits ECB Press Conference

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Top Stories

  • Australian Unemployment disappoints
  • UK Trade Balance largely in-line
  • Nikkei up 0.19% Europe up 0.11%
  • Oil above $101/bbl
  • Gold at $1537/oz.

Overnight Eco

  • AUD Employment Change 7.8K vs. 25K
  • AUD Unemployment Rate 4.9% as expected
  • JPY Final GDP q/q -0.9% vs. -0.8%
  • NZD Official Cash Rate 2.5%
  • NZD RBNZ Rate Statement more hawkish than exp.
  • EUR Minimum Bid Rate n/a
  • GBP Asset Purchase Facility n/a
  • GBP Official Bank Rate n/a
  • GBP Trade Balance -7.4B vs. -7.5B

Event Risk on Tap

  • USD Trade Balance expected at -48.6B
  • USD Unemployment Claims expected at 424K
  • USD Wholesale Inventories m/m expected at 1.0%
  • USD Natural Gas Storage
  • CAD Trade Balance expected at 0.4B
  • CAD NHPI m/m expected at 0.6%

Price Action

  • USD/JPY above 80.0 on importer bids
  • AUD/USD drops through 1.06 after labor data misses
  • GBP/USD rallies to 1.6450 on in line TB
  • EUR/USD above 1.4600 ahead of ECB rate annoucement

@import url(/css/cuteeditor.css); A relatively quiet night in FX as markets prepared for the ECB press conference at 12:30 GMT today that could prove pivotal to the direction of the EUR/USD and risk currencies in general. The EUR/USD has remained bid ahead of the event, rising above the 1.4600 figure in anticipation of the signal by ECB chief Jean Claude Trichet that the central bank will raise rates by 25bp in July.

Meanwhile in Australia the economic news was disappointing as the employment report missed its mark printing at 7.8K versus 25K eyed. Full time jobs contracted for the second month in a row, decreasing by -22K after falling 57.2K in May. The figures for the month prior were revised downward to -29.4K. The unemployment rate remained the same at 4.9%.

In general, the labor data was weak all around clearly indicating that the torrid pace of economic growth Down Under is starting to slow. The disappointing employment results go a long way in explaining the reticence of the RBA to tighten monetary policy any further and suggest that the central bank may remain stationary for some time to come. Interest rate futures are pricing only 12bp of tightening by the end of this year down from 20bp prior to the labor report.

As we noted earlier, "With monetary policy now on pause and global equity markets subject to more selloffs as markets price in the prospect of slower global growth, the AUD/USD look increasingly vulnerable to more declines. The Aussie which is the poster child for the risk trade in the currency market may now suffer from the unwinding of the very trends that propelled it to 1.10 figure just a few weeks ago. If the pair is unable to hold support around the 1.05 handle it could drift back to parity as the summer proceeds especially if global equities continue their slide."

In UK the Trade Balance was better than anticipated helping cable to remain bid above the 1.6400 figure. The ONS reported that the trade gap narrowed to 7.39B from 7.7B pounds the period prior. The trade balance was the smallest since June of 2010 with export volume increasing 5.5%. The news is likely to prove to be a small positive for sterling and will help Q2 GDP somewhat. In a cautionary note, however, the ONS warned that the effects of the Japanese earthquake on trade will not be evident until next month's numbers come out.

In North American session all eyes will be on Jean Claude Trichet as traders await the code word vigilance to appear in the opening remarks which would signal that the ECB is ready to hike rates another 25bp in July. Mr. Trichet's press conference is the make or break event for risk FX today. With RBA now on the sidelines, the ECB is the only tightening central bank left in G-20. If Mr. Trichet demurs to act once again surprising the market, the euro will no doubt tumble as it did in May, but the intensity of its decline is likely to be much more contained, as economic growth in the EZ remains stronger than that of the US and traders will simply push out their expectations of an ECB rate hike a few months forward.

FX Upcoming

Currency GMT EST Release Expected Prior
USD 12:30 8:30 Trade Balance -48.6B -48.2B
USD 12:30 8:30 Unemployment Claims 424K 422K
USD 14:00 10:00 Wholesale Inventories m/m 1.0% 1.1%
CAD 12:30 8:30 Trade Balance 0.4B 0.6B
CAD 12:30 8:30 NHPI m/m 0.6% 0.0%

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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