There was no meat on the bone at the ECB meeting today, which was mostly an exercise in ECB spin and bond markets more or less yawned at developments. EURUSD squeeze continued, however to brink of 1.3000.

ECB

The ECB meeting brought no interest rate change (we all know it’s coming, just a question of timing…) and saw a long Draghi press conference with the embattled president trying to put a positive spin on things while we all await the theoretical risk bonanza of Spain formally requesting a bailout (this is not a Euro-positive development from where I sit). Bond markets didn’t seem particularly impressed by today’s meeting as peripheral spreads widened a couple of bps, but there was very little to go on besides spin as the market plays a head game around 1.3000 in the middle of the recent range in EURUSD.

One of my favourite Euro barometers is EURGBP, which reached a key 0.618 retracement today in the 0.8040 area. I would like for the pair to turn back lower soon (tomorrow) if we are to call an end to the ongoing squeeze higher in Euro positions, otherwise we might have to focus back on recent highs in the EUR/major crosses again. EURJPY reached a similar retracement area today as well ahead of tonight’s BoJ meeting above 102.

Chart EURGBP

EURGBP tested a big typical throwback retracement area here (the 0.618 Fibo) close to 0.8040. if this Euro rally is to find resistance, this area needs to hold up well ahead of the 0.8100 level.

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Looking ahead

Well, this is either a dastardly headfake back higher in the Euro or the real deal, as EURUSD nips at 1.3000 and the JPY crosses trade nervously back higher ahead of the BoJ tonight and increasing noise that the BoJ wants to turn the dial to 11 on a scale of 1 to 10. (Let’s just remember how the last surprise easing went, with a JPY sell-off that lasted all of two hours before reversing course sharply. Use the fixed income market as a confirming indicator either way the JPY cookie crumbles tonight) Remember that the usual “main event” of the US employment report is up tomorrow and will affect JPY cross action as well.

Speaking of the US employment report, of the last three reports, the one in early September felt like an excuse to warm up for QE3 at the FOMC meeting a week later (USD selling really unleashed though NFP only disappointed by 34k and unemployment rate actually fell -0.2%). The two prior reports were all about the Euro, as USDJPY did not move at all on the numbers, despite a considerable upside surprise in the early August number (look at Spanish bonds to understand the huge moves in EURUSD in early July and in early August which only happened on the day of the employment report by sheer coincidence…).

This time around, we have EUR already very strong with tail risk already virtually priced out and we have the QE3 launch in the rear view mirror as well, though we know that worse employment means more QE while good data theoretically encourages USD-funded carry trading. The ADP has been unreliable in two of the last three months and jobless claims have changed course twice in recent months. Is the best guess a fairly “in-line”, boring number? That might be more supportive of the USD than other scenarios, but let’s see where we stand on the Friday close – it’s an interesting week in the charts for many of the key USD crosses and we’ll do a full review early Monday.

Economic Data Highlights

  • Australia Aug. Retail Sales out at +0.2% MoM vs,. +0.4% expected and -0.8% in Jul.
  • Australia Aug. Building Approvals up +6.4% MoM and down -15.4% YoY vs. +4.7%/-14.3% expected, respectively and vs. -10.6% YoY in Jul.
  • UK Sep. Halifax House Prices out at -0.4% MoM and -1.2% 3M/YoY vs. +0.1%/-0.9% expected, respectively and vs. -0.9% 3M/YoY
  • UK BoE left interest rates and asset purchase target unchanged as expected
  • US Sep. Challenger Job Cuts fell -70.8% YoY vs. -36.9% in Aug.
  • ECB left interest rate unchanged at 0.75% as expected
  • US Weekly Initial Jobless Claims out at 367k vs. 370k expected and 363k last week
  • US Weekly Continuing Claims out at 3281k vs. 3275k expected and 3281k last week
  • US Weekly Bloomberg Consumer Comfort Index out at -36.9 vs. -39.6 last week
  • Canada Sep. Ivey PMI out at 60.4 vs. 59.4 expected and 62.5 in Aug.
  • US Aug. Factory Orders out at -5.2% MoM vs. -5.9% expected

Upcoming Economic Calendar Highlights (all times GMT)

  • US FOMC Minutes (1800)
  • Australia Sep. AiG Performance of Construction Index (2330)
  • Japan BoJ Target (no time given)
  • Japan BoJ’s Shirakawa to Speak after BoJ announcement (0630)