Market Drivers for October 15, 2015
- Euro lower against all majors on talk of additional QE measures
- AU Labor misses bu trend remains up
- Nikkei 1.17%, Europe 1.15%
- Oil $46/bbl
- Gold $1184/oz
Europe and Asia
AUD: AU Employment -5K vs. 7K eyed
North America:
USD: CPI 8:30 AM
USD: Weekly jobless 8:30 AM
USD: Empire 8:30 AM
The euro tumbled across the board in early European dealing today on the back of comments by ECB member Ewald Nowotny who suggested that the central bank will need new instruments to include structural changes for further implementation of QE. Mr. Nowotny noted that inflation in the Eurozone remains stubbornly low, hinting that the central bank will not only extend but will likely add some fresh measures to its QE program at its meeting next week.
Although it is difficult to surmise just what specific measure the ECB would implement - it is highly unlikely for example that it would follow the BOJs lead and begin buying equities as well as sovereign bonds - the comments by Mr. Nowotny clearly indicate that policymakers are concerned about the stalling recovery in the region and the persistent disinflationary forces still affecting the economy.
The combination of a stronger euro, lower oil prices and slumping demand from China have all combined to keep price levels unnaturally low in the region and the ECB will likely reveal further stimulus measures to combat that trend.
The euro tumbled against all its major trading partners in the aftermath of the remarks, causing particularly sharp spikes in the Aussie and kiwi as EUR/AUD and EUR/NZD trades were unwound. Over the past week the single currency has gained nearly 250 points as it acted as a primary conduit for anti-dollar flows. While the market remains dubious about any Fed tightening action this year, the focus may shift to the ECB next week and if Mr. Draghi and company decide to rev up the QE program, the euro could come under further selling pressure over the near-term horizon.
In Australia, the labor data missed its mark printing at -5K versus 7K eyed but the market chose to ignore the numbers and the pair rebounded off .7300 support, hitting a high of .7363 in European morning dealing. Although the headline numbers clearly disappointed, with full time jobs declining by -14K while part time employment increased by only 9K, the market chose to focus on trend growth estimates which continued to climb higher. However the trend data is also showing that unemployment is rising as well, suggesting that the Australian economy simply can't generate enough jobs to offset the losses in the mining sector.
We continue to believe that the current rally in the Aussie is simply a short covering move after an extended selloff, spurred by mainly by anti-dollar flows and that the unit will likely cap out at the .7500 level as the slowdown in Australian economy begins to take hold.
In North American trade today the focus will be on CPI data with the market looking for core CPI readings to stay at 0.1%. US data has shown a series of disappointing results this month, indicating a clear slowdown in growth in Q3. The FX market has responded in kind by selling off USD/JPY, with the pair breaking key 119.00 support yesterday and coming perilously close to the 118.00 level in late Asian dealing today.
If the CPI proves to be yet another miss of expectations, USD/JPY could quickly tumble to take out the 118.00 level as even the hardiest of dollar bulls will start to give up on the idea of any rate hike this year.