Currency Updates:
AUD/USD JPY weakness in early Europe lifted AUD/JPY from the 98.30 area towards 99.10 into NY’s open. AUD/USD lifted towards 0.8760 on this but bears pounced once USD strength took over the equation. USD/JPY’s blast-off from the 102.85 area saw AUD/USD slip from its high & sit near 0.8720 as NY got going. The USD remained firm in early NY and AUD/USD tested near 0.8700. a bounce towards 0.8715 was erased after US ISM came in well above f/c. This sent the USD and US yields higher. AUD/USD ran stops below 0.8700 and hit a 0.8683 high. A lift back above 0.8700 ensued but bears lurked and the pair sat just above 0.8690 late in the day. Traders now look to Oz retail sales & trade data for cues. They also have to contend with the ABS’ revised employment reports from Dec ’13 to Sep ’14 as well as the RBA meeting. The RBA is likely to stay on hold and harp on AUD strength. It’s likely they maintain a policy of stable rates but if they remove that stance and lean dovish AUD should get hit. If the ABS revisions are bearish AUD likely gets hit as well and we could see 0.8640/45 break. If it breaks the May ’10 low is eyed.
EUR/USD grudgingly climbed in Europe’s morning. It lifted from near 1.2480 towards 1.2510. Big gains in EUR/JPY (140.70 to a NY high of 142.56) aided the lift but they were offset by broad base USD strength as USD/JPY blasted higher from the 112.85 area. EUR/USD sat just below 1.2500 as NY got going and saw an early lift back to 1.2510 as EUR/JPY stayed firm. The USD’s bid remains and the pair began slipping. The slide accelerated a bit as a Reuters poll showed a median 50% chance the ECB will buy sovereign debt in the coming year. This was upped from a 40% chance noted from an Oct 13 poll. The slide’s pace was then upped after a big upside beat to October ISM sent US yields and the USD higher. EUR/USD went on to hit a NY low of 1.2471 before lifting back above 1.2485 late in the day. There is little major EZ data due so traders look to the European Commission’s autumn econ forecasts and US Sep factory orders for some cues. It’s likely they’ll have limited impact as the market’s attention is more focused on Thursday’s ECB meeting. Until then the pair may hold in a tight & choppy range.
USD/JPY The shock and awe of the BOJ’s QQE2 on Friday carried over into the new week, despite, or perhaps partly because of, the Japanese holiday Monday. The mkt was caught paring its spec short yen trades the previous week and short gamma and trying to chase USD/JPY and crosses higher. The 114 barrier was taken out after an above-f/c US ISM report, but Markit PMI and Construction Spending missed to the downside and there was a tinge of risk reduction to limit follow-through above 114.00. The 114.21 intraday high cleared the 76.4% of the ’07-’11 collapse at 112.62, as well as the top of the ascending channel off the ’13 & ’14 lows at 113.72. Short of another bout of nasty financial market volatility to force some covering of yen-funded trades, the focus is for a quick advance to 115 and perhaps a pause by the Nov ’07 swing high at 117.95. Attention will shift to BOJ/MOF flow reports for signs of GPIF reallocations accelerating the exodus from JGBs into equities (domestic & foreign) and to a lesser extent, foreign bonds. N225 futures are only 5.4% from their ’07 vs USD/JPY at 9.2% below its ’07 peak. Hi-beta/commodity ccys lagging as oil plunges.
Looking Ahead – Economic Data (GMT)
• 00:30 AU Retail Sales MM Sep 0.40%, 0.10%-prev
• 00:30 AU Retail Trade* Q3 0.50%, -0.20%-prev
• 00:30 AU Trade Balance G&S (A$)* Sep -1950m, -787m-prev
• 00:30 AU Goods/Services Imports* Sep -3.00%-prev
• 00:30 AU Goods/Services Exports* Sep -2.00%-prev
• 01:35 JP Manufacturing PMI Oct 51.7-prev01:45
Looking Ahead – Events, Other Releases (GMT)
• 03:30 AU RBA Cash Rate* Nov 2.50%, 2.50%-prev
