Global Markets:

  • Asian stock markets: Nikkei unchanged, Shanghai Comp up 0.35 %, Hang Seng declined 0.20 %, ASX is down 0.60 &
  • Rates: US 10 year yield stands at 2.45
  • Commodities: Gold at $1264 (-0.20 %), Silver at $19.10 (-0.20 %), Crude Oil at $94.45 (unch)

News & Data:

  • Japan FinMin Aso: Fiscal stimulus is one option to offset tax hike effect, GPIF portfolio is quite biased to Japanese bonds
  • Aso: Will watch economy closely, prepare stimulus just in case
  • Aso: Ideal that FX rates move moderately, sudden moves not desirable
  • Japan EconMin Amari: Yen decline reflects dollar strength
  • Fed’s Kocherlakota: Low Inflation shows economy running at sub-capacity; needs more inflation
  • NZ FinMin English: Pressure on NZ interest rates is moderating, expects NZDUSD to fall

ECB & Euro:

The ECB surprised markets yesterday by cutting all main rates by 10 bps, with the depo rate cut the biggest surprise. The Euro got hit across the board after the announcement and pressure only intensified during the press conference. Draghi announced that the ECB will buy asset-backed securities (ABS) and introduced a covered bond purchase programme. He stated that the decision was not unanimous, as some Governing Council members were in favor of doing more, while some were in favor of doing less. According to Draghi, today’s decisions strikes the mid-road. Being asked about QE, he replied that it has been discussed at the meeting. The ECB has hit the lower bound with today’s rate cuts, so the focus will lie on whether the bank will start a QE programme or not. ECB sources note that the barrier to QE remains quite high.

EUR/USD broke sub-1.30 shortly after the press conference began. The pair bounced from there as traders were processing the new information, but selling eventually resumed. EUR/USD hit a low of 1.2917, a level it hasn’t traded at since July 2013. The next major tech support level is the July ’13 low at 1.2755. Imminent resistance at 1.2975, above then 1.30 and 1.3030. EUR has become an attractive funding currency for carry trades and the currency was hit hard vs. the higher-yielding commodity currencies. EUR/AUD declined to 1.38, while EUR/CAD hit 1.4027 and both levels being fresh yearly lows.

EUR/CHF declined to 1.2041. Leveraged names bought the dip and the pair eventually recovered towards 1.2060. One US dealing bank reported that they were seeing large bids on the e-platforms, which sparked the usual SNB intervention rumors. However, most agree that if the SNB decides to intervene in the market, we will see clear signs. For now, the bank is probably standing cautiously on the sidelines.

FX Overview:

  • AUD – The Australian Dollar rallied yesterday against the USD amid strong cross flows, but momentum waned eventually, capping the topside at 0.9392. The pair declined to 0.9330 in Asia amid profit-taking flows from short-term specs and some fresh selling from leveraged funds.
  • CAD – USD/CAD had a strong bounce off the 1.0820 level and is now approaching 1.09 again. The pair is likely to stay bid into the NFP release, but keep in mind that w have Canadian employment data being released at the same time, so volatility could be even greater. 1.08/1.10 are the pivotal levels on both sides of the range.
  • GBP – Cable extended losses in Asia, hitting a low of 1.6283. Worries about the Scottish referendum (September 18th) are keeping GBP sentiment negative, but the pair looks oversold in the short-term. Dealers in Asia think that 1.6250 should be decent support and we’ll see a retracement towards 1.64
  • JPY – USD/JPY rallied to 105.70 overnight, taking out large offers in front of 105.50 and triggering stops above. The move was driven by strong buying from leveraged and real money names. Dealers note that there are trailing stops resting through 105.20 and 105.10 and expect better bids to appear again at 105.00 and 104.80.

Upcoming Events:

  • 09:00 GMT – Euro Zone GDP (0.7 % YoY)
  • 12:30 GMT – US NFP (225k)
  • 12:30 GMT – US Unemployment Rate (6.1 %)
  • 12:30 GMT – Canadian Employment Change (10k)
  • 12:30 GMT – Canadian Unemployment Rate (7.0 %)
  • 14:00 GMT – Canadian Ivey PMI (55.0)