Market Brief
In a surprise action, the ECB cut all its three rates by 10 basis points, sending EUR aggressively lower. Additionally, Mr. Draghi announced that the ECB will start buying private debt through ABS, covered bond purchases starting from November 2014. The ECB policy makers have also considered a QE (government debt purchases), the peripheral sovereign bonds rallied despite no action on this particular area. Draghi qualified yesterday’s action as credit supportive to complement TLTROs to become effective in September/December. EUR/USD dived to 1.2920 for the first time since July 2013. According to technical indicators, EUR/USD is currently seen deeply oversold (RSI at 17%, 30-day lower Bollinger band at 1.3010), we expect a corrective pause at these levels before further sell-off. The next key support is seen at 1.2746/55 (July/April 2013 lows). EUR/USD is now subject to decent option barriers at 1.3000+.
Across the Channel, the BoE kept its bank rate unchanged at the historical low of 0.50% and the asset purchases target stable at GBP 375bn. GBP/USD extended weakness yet the significant reaction came alongside with the ECB decision. GBP/USD extended weakness to 1.6287 as Asian traders followed through the bearish trend. GBP/USD is back to seven-month lows. Negative trend gains momentum pushing the Cable deeper in oversold territories. Key support is eyed at 1.6252 (Feb 4th low) before 1.6000-psychological threshold is envisaged. Decent option barriers will likely keep selling pressures tight below 1.6500.
Until yesterday, EUR/GBP was close to break resistance over 0.80000 as barriers were mostly cleared on the upside. Yet the surprise ECB action pulled the pair a figure down (back below the 21 & 50-dma at 0.79723 / 0.79504 respectively). Option barriers trail below 0.7925 before the weekly closing bell.
The key event of the day is the US August jobs report: change in private, manufacturing and nonfarm payrolls, the unemployment / participations rates and average earnings will be closely monitored. The expectations are optimistic, while the ADP employment report (released yesterday) disappointed with 204’000 new private jobs added versus 220K expected and last month’s 218K revised down to 212K. The August NFPs are expected at 230K (vs. 209K a month ago), the unemployment rate is seen down to 6.1% for a stable participation rate at 66.1%. The weakness in participation rate continues to be a sizeable concern. According to Fed paper, the weakness in jobs market is due to structural changes. Fed’s Powell urges alternatives to Libor as soon as practically possible, as the slack in US labor market is still alarming.
Traders also focus on German July Industrial Production m/m & y/y, French August Consumer Confidence, Swiss August Foreign Currency Reserves, Swiss 2Q Industrial Output y/y, Swedish August Budget Balance, Swedish July Service and Industrial Production m/m & y/y and Industrial Orders m/m & y/y, Norwegian July Industrial Production m/m & y/y, Euro-Zone 2Q (Prelim) GDP q/q & y/y, 2Q Gross Fixed Capital Spending, Government Expenditures and Household Consumption, Canadian August Unemployment and Participation Rate and Ivey Purchasing Manager.
Currency Tech |
| EUR/USD R 2: 1.3110 R 1: 1.3000 CURRENT: 1.2943 S 1: 1.2920 S 2: 1.2755 GBP/USD R 2: 1.6500 R 1: 1.6445 CURRENT: 1.6323 S 1: 1.6252 S 2: 1.6000 USD/JPY R 2: 106.00 R 1: 105.44 CURRENT: 105.30 S 1: 104.75 S 2: 104.00 USD/CHF R 2: 0.9456 R 1: 0.9396 CURRENT: 0.9319 S 1: 0.9177 S 2: 0.9126 |