Euro Recovered Ahead Of ECB, While Aussie Lower on Jobs

The euro recovered mildly overnight against other major currencies but strength is so far limited. While there were some speculations that ECB would cut interest rates today, it's far more likely that the central bank will hold rates unchanged at historical low at 0.50%. According to a Bloomberg survey, BofA, RBS and UBS are the only three out of seventy economists surveyed that expected a 25bps cut. Falling inflation and risk of deflation is starting to pile pressure on the ECB to cut rates. But, opinion on whether it will cut this year is divided. And economists are expecting that ECB would at least wait for the latest inflation and growth projection in December before acting. Judging from the lack of momentum in this week's recovery, risk in Euro is heavily skewed to the downside. The common currency would suffer another round of selloff if Draghi sounds dovish on inflation and hints on a cut in December.

In US, DOW made new record close at 15746.88, up 128.66 pts. S&P 500 also rose 7.52 pts to close at 1770.49, just below record close at 1771.95. The expectation that Fed would continue with ultra ease policies continued to support equities. However, it should be noted again that treasury yields are also strong this week, with 30 year yield rising for another day to close at 3.769% overnight. 10 year yield dropped to 2.64% but was not far from this week's high of 2.677%. While the markets are generally expecting Fed to start tapering in March, such expectation could quickly shift on a string of positive economic data. Two important events to watch include today's Q3 GDP and Friday's Non-farm payroll.

Australian dollar weakens today after weaker than expected job data. Employment grew 1.1k in October versus expectation of 10.0k. Prior month's figure was also revised down from 9.1k to 3.3k. Unemployment rate also rose to 5.7%. The RBA said in the statement earlier this week that growth is below trend and unemployment rate has edged higher. More importantly, the central bank expected the trend to "persist in the near term".

Looking ahead, ECB rate decision and press conference will be the main focus. BoE will also announce policy decision but would likely be a non-event. Focus is on the quarterly inflation report to be released on November 13. Swiss will release SECO consumer confidence and foreign currency reserves. Germany will release industrial production. US Q3 GDP is expected to show 2.0% growth while initial jobless claims is expected to drop to 335k.