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Will ECB Surprise the Market?

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Top Stories

  • Australian jobs contract for 2nd month in a row
  • Markets await ECB press conference seeking clarity on monetary policy
  • Nikkei up 0.34% Europe up 0.68%
  • Oil nearly $89/bbl
  • Gold rebounds to $1842/oz.

Overnight Eco

  • AUD Employment Change (AUG) -9.7K vs. 10.7K
  • AUD Unemployment Rate (AUG) 5.3% vs. 5.1%
  • CHF Unemployment Rate (AUG) 3.0%
  • EUR German Trade Balance (euros) (JUL) 10.1B vs. 11.0B

Event Risk on Tap

  • USD Trade Balance (JUL)
  • USD Initial Jobless Claims (SEP 2)
  • USD Continuing Claims (AUG 27)
  • USD Consumer Credit (JUL)
  • CAD Building Permits (MoM) (JUL)
  • CAD New Housing Price Index (MoM) (JUL)
  • CAD International Merchandise Trade (Canadian dollar) (JUL)

Price Action

  • USD/JPY quiet near 77.40
  • AUD/USD trades below 1.0600 on weak labor data but recovers somewhat
  • GBP/USD very quiet at 1.5950 ahead of BoE
  • EUR/USD holds above 1.4050 in from of ECB

An extraordinarily quiet night in the currency market as majors pairs have essentially flat lined ahead of a busy day of speeches and policy news that will commence with BOE and ECB monthly announcements and will be followed by speeches by Chairman Bernanke and President Obama. Traders are eager to see whether ECB President Trichet will adopt a more dovish tone with respect to monetary policy in light of the recent economic slowdown in the region.

On the economic front the only major piece of news came from Australia where the labor data disappointed printing markedly weaker than expected as the economy lost -9.7K jobs versus 10.7K eyed. The unemployment rate spiked to 5.3% versus 5.1% forecast - it's highest reading in 12 months as the economy lost jobs for the second month in a row. Looking underneath the headlines, the data proved even more disappointing as full time jobs declined a further -12.6K following a drop of -22.2K the month prior.

As we wrote earlier, "Today's poor employment report stands in sharp contrast to yesterday's stronger than anticipated Australian GDP numbers, making them look like a distant memory as markets once again become concerned about sharply decelerating growth Down Under as we head into the end of the year. The dour employment news is likely to weigh on consumer sentiment and could curtail spending going forward increasing the chance of an economic slowdown. Interest markets are likely to begin pricing in a series of rate cuts by the RBA, especially if employment continues to contract next month as well. "

Nevertheless, the Aussie was able to shrug off the bad data and by mid morning European trade recovered most of its post news losses as improving equity market flows helped lift the pair. Risk flows will continue to be the predominant factor in AUD/USD trade as the day proceeds, but the pair remains vulnerable to sharp selloff especially if equities are unable to hold their gains. 1.0500 remains the key level of support for AUD/USD and if it is broken, the pair could quickly slide to test parity once again.

In Europe all eyes will be on President Trichet as he holds his farewell press conference after 8 years in the job. Some market commentators including Nouriel Roubini have suggested that Mr. Trichet may signal a rate cut as his final gesture, but given the slow and steady nature of ECB policymaking such a move would appear to be grossly out of character to us. At best we think Mr. Trichet will project a neutral posture, but will concede that the central bank may consider easing in the near future if the economic fundamentals in the region deteriorate further. The markets may be disappointed with such a stance and equities could sell off on lack of any additional monetary stimulus which in turn could drive risk FX lower as the day progresses.

FX Upcoming

Currency GMT EST Release Expected Prior
USD 12:30 8:30 Trade Balance (JUL) -$53.1B
USD 12:30 8:30 Initial Jobless Claims (SEP 2)
USD 12:30 8:30 Continuing Claims (AUG 27)
USD 19:00 15:00 Consumer Credit (JUL)
CAD 12:30 8:30 Building Permits (MoM) (JUL) 2.1%
CAD 12:30 8:30 New Housing Price Index (MoM) (JUL) 0.3%
CAD 12:30 8:30 International Merchandise Trade (Canadian dollar) (JUL) -$1.6B

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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