Stocks And Commodity Currencies Tumbled While European Majors Steady

European majors were generally steady against dollar and yen in Asia today but commodity currencies are dragged down by broad based weakness in stocks. Weak economic data reminded investors of the gloomy economic outlook. Japan retail sales dropped -0.8% yoy in July while Australian building approvals dropped -17.3% mom in July.

Sentiments were also affected as investors were scaling back their expectation on Bernanke on the highly anticipated address in the Jackson Hole symposium. The latest Beige Book unveiled that economic activity improved "gradually" in most regions and "most Districts indicated that retail activity, including auto sales, had increased since the last Beige Book report." Technically, though, the big four EUR/USD, GBP/USD, USD/CHF and USD/JPY are stuck in range so far and lacked inspiration for a breakout.

Fed chairman Bernanke will deliver a speech titled "Monetary Policy Since the Crisis" on Friday in the Jackson Hole Economic Symposium. All eyes will be on hints of QE3 and the expectations have built up after FOMC minutes for August meeting revealed that "many members judged that additional monetary easing would likely be warranted fairly soon." However, some pointed out that Bernanke could refrain from giving any clear guidance as firstly, the message was already delivered in FOMC minutes. Secondly, there are big event risks ahead in European in September, and there will be elections in US later year. Instead, Bernanke could just opt for focusing on the lessons learned since the current framework was laid out two years ago.

Meanwhile, PIMCO's Bill Gross commented that even if Bernanke fails to meet market expectations in the symposium, it's still likely that Fed will announce more stimulus "relatively soon". Gross pointed out that "unemployment is still above 8 percent and it's obvious that the Fed isn't comfortable, nor is the nation or the economy with 8 percent unemployment going forward." But Gross also doubted that additional measures will "produce limited results".

In Europe, few surprises were delivered in the meeting between Merkel and Monti. Merkel believed that the reforms being carried out by Italy "will bear fruit" and stated that the market should "approve the ability to cooperate within the Eurozone over the next months" However, Merkel also reiterated her opposition against granting a banking license for the ESM as it is incompatible with EU law.

In an article titled "The future of the euro: stability through change," ECB president Draghi continued his pledge that ECB would do all necessary to ensure price stability, remain independent and act within the limits of its mandate. Draghi emphasized that ECB is "not a political institution." Yet, Draghi also pointed out that fulfilling the central bank's mandate "sometimes requires us to go beyond standard monetary policy tools." Current financial markets are "fragmented or influenced by irrational fears." And, that affect the transmission of ECB's monetary policy. He also said that such "blockages" need to be fixed to "ensure a single monetary policy and therefore price stability for all euro area citizens."

Looking ahead, German unemployment and Eurozone confidence indicators will be released in European session with UK mortgage approvals and M4. From US, main focus will be on personal income and spending, which are expected to rise 0.3% and 0.5% in July respectively. Initial jobless claims is expected to be steady at 370k.