EUR/USD
Price action for the pair was dictated by the lower-than-expected Eurozone core CPI (0.7% vs. Exp. 0.9%), which suggested that the Eurozone’s price level woes cannot be attributed solely to the slide in commodity prices. As a result, markets are accelerating their expectations of further action from the ECB, particularly QE. EUR/USD gained additional downside momentum, falling over 35 pips on the release. The pair was down over 130 pips at its lowest ebb, breaking firmly below the 1.2600 handle, through YTD lows and a touted large option barrier at 1.2615. Looking ahead the ECB rate decision on Thursday will now be even further anticipated, notably analysts at Citi says EUR to stay under pressure heading into ECB day and suggests the ECB may surprise again by signalling aggressive asset purchases targets (Citi expects EUR 150bln buying of ABS and EUR 250bln of covered bonds) pushing EUR lower.
AUD/USD
AUD/USD was offered overnight, being dragged lower as a result of AUD/JPY sales by Japanese investors, and ahead of the Chinese HSBC Manufacturing PMI ((Sep F) M/M 50.2 vs. Exp. 50.5 (Prev. 50.5)) and Australian Private Sector Credit ((Aug) M/M 0.4% vs Exp. 0.5% (Prev. 0.4%)). Yet little movement was seen on either releases, despite the export component of the Chinese PMI printing a 4-year high. The pair did, however, gain 74 pips, from its overnight low at 0.8694 to its morning high at 0.8768, as the USD-index slipped into the red, but further upside momentum was capped by reported Asian offers above at 0.8780. Looking ahead, Chinese manufacturing PMI and Australian retail sales appear to offer speculators further opportunity for price action.
USD/JPY
As the USD strengthened following CPI-inspired EUR weakness, and the USD index again hit fresh 4-year highs, with USD/JPY in turn reaching a 6-year high and surpassing YTD highs at 109.75 in the process. The pair gained upwards of 66 pips over the session, again testing the 110.00 handle to the upside but failing to break it as touted option barriers at this key level offered resistance. As the US came to market, and with the USD-index drawing back from earlier highs, the pair has moved away from its 6-year highs. Heading into the European close USD/JPY trades up over 20 pips. Overnight Wednesday pertinent data comes in the form of the Tankan large manufacturing index and manufacturing PMI, both focal points for participants.
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