EURAUD… Beware any rally in the Euro
The European Central Bank’s meeting on Thursday was a game changer, with President Mario Draghi reintroducing rate cuts as a potential policy tool as the central bank attempts to stave off consistently low inflation and stagnant growth. Inflation, when it is too low, signals a slowdown in the overall economy. Market participants previously didn’t think another deposit rate cut was an option, it now appears the ECB is going to be more proactive than otherwise thought possible at their next meeting in December.
One of the major themes at the end of last week was the market shifting focus back into the QE-driven trade, when a given central bank weakens, its domestic currency depreciates, equity markets rally, and sovereign yields fall. In true form – confirmation that portfolio rebalancing channel effects are making their way through the market, the Euro was the worst performing major currency last week, while European equity markets rallied and German yields turned negative all the way out through six-years.
If December is truly the meeting to look forward to, we may now have five-plus weeks ahead for markets to toy with the notion of more stimulus or QE from the ECB. As these measures are priced in, or expectations drive the different financial markets, the middle of Q4 ’15 may prove troublesome to the Euro, as several of the major EUR-crosses may have started their next legs lower.
AUDNZD trade balance disappoints
Bringing focus back to this week, a large slew of high tier data is set to be released onto the market from most of the major global economies. This should drive volatility in a range of currency pairs, AUDUSD, GBPAUD, EURAUD AUDNZD to name but a few. To kick off the week, New Zealand released its trade balance figures for the month of September. Exports were expected to rise to NZ 3.90 Billion from 3.71 Billion. Imports were also expected to slightly rise from 4.77 Billion to 4.78 Billion. Central banks always like exports to rise over Imports but unfortunately this was not the case this morning. Exports fell to 3.69 Billion from 3.71 Billion ( 3.9 expected) and Imports rose to 4.91 Billion from the 4.78 expected.
This caused an initial selloff in the Kiwi Dollar compared to the Aussie but as of writing the dollar had recovered off its lows to trade at 1.0700 wholesale, still sitting precariously at a 5 month low though. New home sales out of the U.S fell dramatically from the 0.6% expected to a whopping -11.5%. This will be worrisome to the Fed as it collates recent data to decide whether it raises interest rates Wednesday night AEST at the Federal open market committee meeting. The Aussie Dollar is still looking good for a continuation of its recent rally against the U.S Dollar as the market continues to price in no rate hike anytime soon
GBPAUD: GDP change in trend or just a correction
The UK is not one to be left out as we get set to see the release of UK GDP tonight. Analysts are expecting a stable reading of 2.4% which will help to determine whether this correction in the GBPAUD runs deeper or reverses track. The exchange rate has failed to make new highs now for over 2 months with some market pundits calling a change in trend.
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