Swiss the ‘only’ lovers of EUR
More Rhetoric from Draghi and Company
Aussie negotiates a new record low
CBR rumored to be trigger happy
Who cares, just as long as you are not ‘long’ any it seems – except perhaps against the CHF. The Swiss National Bank appears to be the only entity wholly committed to fulfill their requirements to keep the “line in the sand” or EUR/CHF floor (€1.2000) very much intact, insisting they will buy as many EUR’s as it takes to get the job done. Nevertheless, for everyone else it seems to be “sell” EUR’s and we will see you down there.
This Wednesday marks the beginning of the last three-day’s of market event risk before the holiday “funny” price season really begins, and this despite the FOMC meet on December 16/17. The 18-member single unit has managed to slip to a new two-year low (€1.2326) during this morning’s Euro session, with expectations of further easing running ahead of tomorrow’s highly anticipated ECB meet.
The EUR has been driven lower by confirmation from today’s swath of Euro PMI services data that their eurozone economy remains fragile, weak, while building further ‘disinflation’ pressures. The November composite PMI fell to 51.1, from the flash 51.4, down a full-point from October’s announcement. Digging deeper, the new-orders component has contracted for the first time in 18-months, while prices point to inflation risks remaining to the downside. None of this is new to Euro policy makers – they have talked enough about it of late, but will they react?
More Rhetoric from Draghi and Company
The data further supports the case for QE. Persistently low inflation and a flagging economic recovery have certainly upped the pressure on the ECB to expand its program of asset purchases. This course of action would have an obvious negative impact on the EUR, nevertheless, the market is pricing in QE being delivered in Q1, 2015 and not tomorrow. Many expect Draghi and company to further lay the “foundation” for QE – in other words, make sure that politicians and the general public truly understand what it means and its justification. The danger is that so many are betting against the EUR, that if the ECB does not deliver or throw a dovish bone, the single currency could rise once again and ruin many individuals’ holiday festivities!
Central Bank of Russia under further pressure
Central Banks certainly dominate this week’s activity. The regular announcements, even today’s Bank of Canada, are being very much priced as routine. Nevertheless, some bankers will be called upon to react to varying market conditions and none more so than the Central Bank of Russia (CBR). While direct currency intervention or support was seen unlikely until recently (the dismiss of bands to direct intervention), the move of the currency above USD/RUB $54 seems to have pushed the CBR to react this morning. The RUB price action is looking rather ugly, falling shy of $55 and rising from $53 within a breath, this price action not for the faint of heart. It seems that the market will follow crude oil prices to support their convictions. Supposedly, if Brent could stabilize at around $70/bbl then the USD/RUB has a chance to retreat towards the lower $50’s.
Volatile crude prices are not complicating things just for the CBR. Oil price moves are making gold investors very frustrated. The precious metal experts usually follow the price of oil as it has an impact on consumer costs and inflation. The current whiplash price activity from the black stuff is managing to incite some of the biggest price swings for bullion in nearly a year. Adding to investor’s pain is a dollar rally that’s curbing demand for alternative assets.
In November, the precious metal fell to a four-year low as the market saw less need for a “store-of-value,” while this week the metal has already rallied the most in 14-months ($1,203, when crude managed to rebound from its five-year low. It’s a natural toss for the metals direction under current conditions, nevertheless, there are suppose to be many negative factors capable of pushing gold down and only a few of support – it’s a waiting game of patience.
Later this morning North America takes delivery of a potential “red herring” – Eyes will expect to be focusing on a likely dollar supportive data. It’s ADP non-farm employment change, and initial forecasts are looking for a +221k print. Remember last month, it beat expectations (+230k vs. +220k), while NFP went on to miss its forecast a mere two-days later (+214k vs. +230k).
Aussie negotiates a new record low
In the overnight session the AUD has managed to fall to a new four-year low (AUD$0.8390) on the back of a disappointing Q3 GDP report. This is allowing for the market to begin pricing in more RBA cuts. The report missed consensus on both the quarter (+0.3% vs. +0.7%) and year-over-year basis. Digging deeper, capital investment was a huge drag on growth, it fell -2.7% after a +0.3% rise previously. Not surprisingly, construction was also a key detractor to Aussie growth (-0.2%, q/q). Nevertheless, the slowdown in growth is still in line with RBA expectations, the market needs to remain weary of not getting too far ahead of the RBA rate curve – down-under yield still looks attractive to many portfolio managers!
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