Currency Updates:
AUD/USD All of Asia’s gains were erased in Europe as the USD regained its footings. AUD/USD slipped form the o/n high and sat just above 0.8730 as NY got going. The pair had been consolidating into NY’s open and early action saw that theme persists. The bear won out though as the USD firmed a bit further and US bond yields recovered off their lows. The pair slipped through Europe’s low and quickly hit a 0.8695 low. Some intra-day profit taking saw a bounce into Europe’s close. The remainder of NY was relatively subdued and the pair sat just above 0.8710 late in the day. The RBA’s minutes and RBA governor Stevens’ speech are the key risks later on. The minutes are likely to be status quo and harp on AUD strength and neutral rates. Traders will keep a close ear on Stevens though. Last week RBA’s Asst. Gov. Kent noted that intervention hasn’t been ruled out. Should Stevens utter intervention as well traders will take notice. AUD/USD might get hit. A test of the 10-DMA and TL support near 0.8670 as well as the Nov 14 low is then likely. A break below them could indicate the recent squeeze is done & a test of the 2014 low might be due.
EUR/USD Asia’s rally was short lived and Europe erased the gains after the USD’s slide reversed and comments from ECB’s Mersch weighed. Mersch noted the theoretical possibility of buying state bonds, gold or shares. EUR/USD slid towards 1.2480 before a slight bounce had it near 1.2500 into NY’s open. NY attempted an early lift but couldn’t get it back above 1.2510. Comments from ECB’s Praet and Draghi then weighed further. Praet was confident that the ECB will hit its 1 trln EURO balance sheet target while also noting the ECB built a strong disconnect with US rates and the ECB wants to keep it that way. Draghi was dovish again & noted additional measures could include further size and composition changes to the b/s. He also noted sov bond buys could be included in the unconventional measures. EUR/USD tanked, cleared the 200-HMA and quickly hit a 1.2445 low. bounces off the low were capped by the 200-HMA (1.2456) and the pair sat just below that average late in the day. Germany’s Nov ZEW is the main risk o/n. A weak report likely sees EUR/USD under pressure. We may then see the 2014 low retested.
USD/JPY Considering the scale of the Japanese GDP miss, USD/JPY actually held up fairly well vs most of the other major USD pairs. Abe’s delaying of the Oct ’15 VAT hike and calling of a snap election on Dec 14 is fait accompli. There is also likely to be far less QQE2 dissent, if any, at Wed’s BOJ policy meeting. And the fact that yen weakness wasn’t an agenda item at the G20 suggests the ball remains in the BOJ court. The rebound from Asia’s 115.45 low in USD/JPY got to 116.54 in late London trade, despite soft HL US IP & CU results. Mild weather and weak energy prices trimmed the broader results. The rebound in N225 futures wasn’t as big as USD/JPY’s, while falling USD-JPY 2-yr yield spreads put a lid on gains in the afternoon. Though Japan’s Q3 GDP miss may be revised upward, the focus is now shifting to when QQE3 might be launched and whether the ’15 extra budget will be pruned due to the VAT hike delay. The Oct ’07 high at 117.95 still looks within reach fairly soon. Marginal net losses on the day for most of the yen crosses.
Looking Ahead – Economic Data (GMT)
• 1:30 CN China House Prices YY* Oct -1.3%-prev
• 2:00 CNFDI (YTD) Oct -1.4%-prev
Looking Ahead – Events, Other Releases (GMT)
• : JP Bank of Japan policy meeting
• 00:30 AU RBA Minutes of Nov. Meeting
• 08:25 AU RBA Stevens Speech at CEDA Annual Dinner No
