Currency Updates:
AUD/USD The pair spent Europe’s morning lifting off Asia’s low. The move saw the pair rally from near 0.8390 towards 0.8420 into NY’s open. EUR/AUD’s break below 1.4700 and subsequent drop near 1.4605/10 aided AUD/USD’s rise. NY added to the gains early on after ADP missed estimates and labor costs were a bit soft. A quick lift to 0.8447 ensued. Bears emerged though after USD/JPY bounced off hourly support near 119.20 and US bond yields added to recent gains. The pair then steadily descended for the remainder of NY and sat just above 0.8400 late in the day. Trader now look to Oz Oct retail sales & trade data for AUD cues. Below forecasts results will be more fodder for AUD bears after the GDP miss. AUD/USD likely would trade heavy again and make a run for key support near 0.8315.
EUR/USD The pair got smashed from the 1.2380 area towards 1.2320 in Europe’s morning on a combination of soft EZ services PMI and rising US yields. NY walked in with the pair sitting just off Europe’s low. Early action saw a lift to 1.2345 after the ADP and US labor costs come in on the soft side. The rally quickly faded though as the USD regained its composure on a resumption of the US yield rally. Europe’s low was cleared and the pair hit a 1.231 low. Large bids protecting a 1.2300 barrier prevented further losses but the bounce off the low was minimal. Late in the day the pair sat near 1.2310. The ECB is the big risk coming up. No new action is expected from the market and that may lead to a knee-jerk profit taking rally. A reaction like that is only an opportunity for those looking to get short do so. It is widely expected that Q1 will see new action from the ECB and that will keep EUR rallies limited at best.
USD/JPY Despite soft ADP and US labor costs data, USD/JPY rallied past 119.50 barriers and stops on reports of a Nikkei story indicating Abe’s ruling coalition will have no problem maintaining the 2/3 majority in the Dec 14 polling. This reinforced the existing appetite for selling yen amid QQE2, GPIF, falling oil prices and rising equities. The dollar side was reinforced late in the Ldn session by the above-f/c ISM Non-Mfg result; a result that was apparently somehow leaked early to the market. The Tsy curve held up better at the front end as L-T inflation expectations recede amid attempts by Dudley and others to temper any negative financial market reaction to Fed normalization next year and beyond. Offers at 119.85 up the 120 barriers are slowly being chewed through as the NY session winds down. Bids now building as close at 119.50 and 119.15-25. The mkt is short gamma above 120. Expiries between now and Dec 15 are ltd topside to 122, with the vast majority at or below 120. Riskies are favoring calls the most since last month’s peak. EUR/JPY found support by the Tenkan at 147, but Q1 ECB QE fears are crimping the uptrend. CAD & GBP crosses outperformed.
Looking Ahead – Economic Data (GMT)
• 23:50 JP Foreign Bond Investment w/e -45.1b-prev
• 23:50 JP Foreign Invest JP Stock w/e 734.9b-prev
• 00:30 AU Retail Sales MM Oct f/c 0%, 1.20%-prev
• 00:30 AU Trade Balance G&S (A$)* Oct f/c -1900m, -2261m-prev
• 00:30 AU Goods/Services Imports* Oct 6.00%-prev
• 00:30 AU Goods/Services Exports* Oct 1.00%-prev
Looking Ahead – Events, Other Releases (GMT)
• No Significant Events
