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September 6: forex news
EUR/USD has been trading between $1.2470 and $1.2625 since August 23. The market’s waiting for the ECB meeting and its mood swings between optimism and cautiousness. Today the former dominated during the Asian trade after a leaked report from Bloomberg unveiled the central bank is to announce unlimited, sterilized buying of bonds with maturities less than 3 years. According to a member of Angela Merkel’s party, the Chancellor told lawmakers yesterday she can accept temporary ECB bond buying.
Some analysts say that now there isn’t anything the ECB may surprise the markets with. In their view, the market will be instead focused on ADP employment report, unemployment claims and the ISM non-manufacturing index released in the US in the evening ahead of the NFP figures coming on Friday.
Bank of England also meets today, though it’s not in the highlight. The BoE is expected to keep its monetary policy unchanged for now – benchmark rate at 0.50% and asset purchase program at 375 billion pounds ($584 billion). There may be more QE when the current program is completed in November. GBP/USD is trying to hold above $1.5900.
AUD/USD rallied from almost a 7-week minimum around $1.0160 as unemployment unexpectedly fell in August (Actual: 5.1%; cons.: 5.3%; prev.: 5.2%). USD/JPY is trading sideways, though moving up very gradually, still below resistance of 78.45. USD/CAD managed to rise above 0.9900 but was capped by the resistance at 0.9915.
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Key options expiring today
Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).
Here are the key options expiring today:
EUR/USD: $1.2500, $1.2525, $1.2550, $1.2625, $1.2635;
GBP/USD: $1.5865, $1.5900, $1.5925;
USD/JPY: 78.50, 78.70;
USD/CHF: 0.9600;
AUD/USD: $1.0150, $1.0200, $1.0220, $1.0300, $1.0250;
USD/CAD: 0.9900, 0.9925
EUR/GBP: 0.7865, 0.7935, 0.7950;
EUR/JPY: 98.60.
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ECB’s decision: analysts in anticipation
EUR/USD returned to the recent highs above $1.2600 as leaked report from Bloomberg unveiled that the central bank is to announce unlimited, sterilized buying of bonds with maturities less than 3 years.
NAB: The market is pleased by the fact that we have some details and that the ECB is going to follow through with what was hoped that they would do. The euro can at least remain around current levels and possibly be a little bit supported into the ECB meeting.
Bloomberg survey: 30 of 58 forecasters expect the ECB to cut benchmark rate by 25 bps to 0.5%.
UBS: There’s 60% probability of the ECB’s rate cut today.
Nomura: Calls for a rate cut will be justified by the ongoing deterioration in the growth outlook and in spite of slightly firmer inflation projections. The ECB may once again cut GDP forecasts.
Westpac: Low chance of a rate cut right now. The more important question for markets is what President Draghi will say at his news conference. If the anonymous central bank sources are correct on the key points, then EUR reaction should be limited. We doubt any attempt to “sell the fact” will last long, as the ECB is set to take important and welcome action to stabilize euro zone’s bond markets and sharply reduce risk premiums related to EMU exit(s).
RBS: Rates will be left on hold with the latest set of projections to paint a gloomier picture on growth the inflation outlook unchanged.
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USD: NFP will make the Fed decide
Market expectations for additional monetary stimulus from the Fed strengthened after Ben Bernanke said last Friday the central bank was ready to act if needed. The US is struggling to show economic recovery. US manufacturing survived in August the biggest decline in more than 3 years: the ISM manufacturing PMI index came at 49.6 (cons.: 50.0; prev.: 49.8). The main focus now is on the labor market.
According to consensus forecast, US non-farm payrolls grew in August less than in July (cons.: 121K; prev.: 163K), while American unemployment rate stayed above 8% for the 43rd month in a row. The data is released on Friday, September 7, at 12:30 GMT. Watch for the ADP employment report today at 12:15 GMT for the hints (cons.: 142K; prev.: 163K). The FOMC meets next week, on September 12-13.
Credit Agricole: “The Fed is likely to ease further this month but exactly what options it will take will depend on data. So until we see the jobs report, we can’t push markets either way.”
BBH: “The outcome of next week’s FOMC meeting and thus the timing of QE3 may very well rest on Friday’s NFP data for August. We expect that a number close or higher to the July print will keep the Fed adjusting its future guidance rather than initiating a new asset purchase program. This will probably translate into a dollar positive and equity negative outcome.”
Photo: Victor J. Blue for Bloomberg
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AUD: skeptical views on labor market
AUD/USD rallied from almost a 7-week minimum around $1.0160 as unemployment unexpectedly fell in August (Actual: 5.1%; cons.: 5.3%; prev.: 5.2%).
Never the less, analysts at NAB aren’t optimistic at all. In their view, the jobless rate declined only because many people have stopped looking for work due to the glut of negative news and low levels of consumer confidence. Australian employment fell by 8.8K last month (cons.: 5.1K; prev.: 11.7K). According to NAB, “it was a fairly soft labor force report, with the level of employment back to where it was in April 2012, so no jobs (in net terms) have been created in the past four months.”
Strategists at ANZ are almost sure that Australian unemployment rate will move higher in the near future. “We find it very difficult to believe that the unemployment rate declined in the month given that job ads and measures of hiring intentions have trended lower over the past six months, and the number of unemployment benefit recipients has trended higher.”
Bear that in mind ahead of further RBA meeting and employment data releases. The data might not support Aussie for long.
Chart. H4 AUD/USD
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EUR/CHF took off from 1.20
One year passed since Switzerland limited the ability of EUR/CHF to decline by 1.2000. EUR/CHF rose today to 1-month maximum of 1.2062 before recoiling down from the 200-day MA to the levels around 1.2050.
Note that the current advance of the single currency is unlike the few, sharp rallies and reversals of the past four months which were caused by merely speculative activity. This time euro is moved by hopes of the ECB’s bond purchases. The less is the risk of euro zone’s collapse, the less is demand to buy franc versus euro. If the ECB does something to ease pressure on the European bond markets and it looks like it will, we’ll see short covering in EUR/CHF.
In addition, there are the rumors that the Swiss National bank might lift the EUR/CHF peg up. Analysts at Rabobank claim that this time the rumors may have some substance behind. In their view, the odds of the SNB lifting the peg to 1.25 are greater than the possibility of the central bank abandoning it. Such assumption seems sensible enough: if the ECB decision triggers euro’s short covering, it would be easier for SNB to lift the floor. Remember that Switzerland does need weaker franc. Swiss economy contracted in Q2 by 0.1% q/q and deflation surely played its role in that. On the other hand, the downtrend in EUR/USD may resume in the near future. That would put EUR/CHF under negative pressure.
You may see on the H4 chart that the pair has some support and euro isn’t in a hurry to return to 1.20. The key event is, with no doubts, the ECB meeting: if the markets are satisfied by its results and the central bank manages to pull down peripheral bond yields, the chances of EUR/CHF for gradual advance will increase. If not, euro will be pulled back to 1.20 and the market will once again test the SNB’s resolve to defend this level. Better stand aside for now.
Chart. H4 EUR/CHF
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ECB Draghi: unlimited sterilized bond purchases
- Economic growth remains weak. Projections for the euro area are lowered: 2012 GDP growth projection is diminished form -0.5%/+0.3% in June to -0.2%/-0.6% and 2013 growth estimate – from to 0.0%/2.0% in June to -0.4%/1.4%.
- “Monetary Outright Transactions” (OMTs) program – purchases of government debt – will be an effective backstop for the single currency.
Features of the OMTs program:
• Conditionality attached to EFSF/ESM program.
• ECB will purchase bonds with maturities of 1-3 years.
• There are no amount/time limits set for the bond purchases.
• Liquidity will be fully sterilized.
• ECB will be free to terminate the program when its goals are achieved or if the required conditions aren’t met.
• ECB won’t break its mandate as it will operate on the secondary market, not the primary one.
• The Eurosystem won’t be a preferred creditor will have the same treatment as other bondholders.
• The purposes of the purchases are monetary: to ensure the price transmission mechanism in the euro area is functioning.
• ECB is seeking the IMF insolvent, but can’t force the fund.
- Euro is irreversible.
- ECB retains its independence.
- Governments must push on with budget consolidation and activate EFSF and ESM for the ECB to intervene in bond market.
Photo by Hannelore Foerster/Bloomberg
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USD/JPY jumped close to 79 yen
USD/JPY rallied to the upper border of its trading channel, up from the opening level by about 60 pips.
The greenback was helped by the positive news from the euro area and the United States. The ECB will effectively act on the debt markets through unlimited bond buying of bonds with 1-3 maturities conditioned to the EFSF/ESM. US unemployment claims dropped from 377K to 365K vs. the forecast of 369K. ADP employment change jumped from 173K to 201K in August vs. the forecast of 142K.
Commerzbank: as long as USD/JPY is trading above support of the trend line and 77.90 (August minimum), its medium-term forecast will be bullish with the psychological 80.00 region remaining in focus.
Chart. Daily USD/JPY
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September 25: forex news
On Tuesday the market sentiment is relatively calm, but negative for the risky currencies.EUR/USD continues to move down and has already slid below $1.2900. According to specialists at NAB, the absence of improvement in the euro zone will keep the single currency subdued. Today the political agenda is intensive: ECB's president Mario Draghi meets German chancellor Angela Merkel to discuss the state of the euro economic and currency union along with other EU leaders giving speeches. Draghi will also deliver a speech in Berlin (13:00 GMT). Watch the business and consumer confidence reports in Germany, France and US today.
AUD/USD trades around $1.0420 and is supported by the positive China’s data (CB leading index in August: 1.7%; prev.: 0.6%). NZD/USD remains near yesterday’s closing level at $0.8230. USD/CAD gradually rises from recent lows and trades below 0.9800. Today Canada will release retail sales data at 12:30 GMT. GBP/USD continues to consolidate below the $1.6300 handle as it remains flat around $1.6225. Meanwhile, demand for the Japanese currency keeps growing: USD/JPYtrades on a downside for five days in a row and is now below the 78.00 mark. Japan is preparing to appoint the new finance minister after prime minister Yoshihiko Noda yesterday named current finance minister Jun Azumi acting secretary-general of the ruling Democratic Party of Japan.
Key options expiring today
Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).
Here are the key options expiring today:
EUR/USD: $1.2835, $1.2900, $1.3000, $1.3050, $1.3100;
GBP/USD: $1.6200;
USD/JPY: 77.90, 78.05, 78.60;
AUD/USD: $1.0350, $1.0400, $1.0430;
EUR/JPY: 101.00, 102.60, 102.90;
EUR/GBP: 0.7980.