EUR continued to drift lower

Market wrap

An air of caution permeated most markets ahead of Wednesday’s FOMC. There was little major news flow to propel markets, Italy’s weak GDP outturn and a rejection by the IMF troika of Greece’s budget proposals serving to restrain sentiment. The S&P500 is currently down 0.3% after spending much of the session in a narrow range. Hard commodities were strong, possibly on speculation stimulus is coming following recent weak economic data, copper futures +1.0% and physical iron ore (Tianjin port) +6.7%. US 10yr treasury yields fluctuated between 1.66% and 1.69% for little net change. Eurozone peripheral bonds halted a four day surge, Spain’s 10yr yield up 7bp, Italy +13bp, and Portugal +25bp.

The US dollar index (DXY) is little changed. EUR continued to drift lower, from 1.2800 to 1.2760. USD/JPY was stuck in a narrow sideways range between 78.20 and 78.33. AUD fell in NY from 1.0368 to 1.0334. NZD similarly fell from 0.8117 to 0.8086. AUD/NZD bounced off a multi-week low of 1.2750 to 1.2790, probably helped by the rebound in iron ore prices.

Economic wrap

No US data to report.

Euroland Sentix investor confidence improves from –30.3 to –23.2 in Sep, reversing all of the May-Aug declines. The survey was taken over the weekend so would capture the post-Draghi press conference mood. Most of the improvement was due to expectations, up 12.5 pts but the current index rose 3.2 pts too.

Market outlook

AUD and NZD Outlooks: Local data is minor for markets. NZ has electronic card spending (tipped to bounce on fuel prices) and QV house prices, while Australia has business confidence. China’s lending and money supply data will be watched. Further ahead, the German court ruling on the ESM bailout fund (expected tomorrow) and the results of the Dutch elections will be important.

NZD/USD 1 day: Below 0.8090 towards 0.8050, with 0.8117 required to hold for today’s bearish view.

NZD/USD 1 month: As long as 0.8170 holds, lower to 0.7800 or below.

NZ 2yr swap yield 1 day: Opening today 2bp higher at 2.70%.

NZ 2yr swap yield 1 month: Lower - momentum remains negative targeting 2.50% but FOMC is a major risk.

AUD/USD 1 day: Below 1.0337, with 1.0385 required to hold for today’s bearish view.

AUD/USD 1 month: As long as 1.0410 holds, lower to 1.0100 or below.

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