Spanish Auction, Central Bank Actions
During the 7/5 session, there were quite a few risk events.
- The Spanish government bond auction went through with decent demand, but at the highest yield for the 10-yr bond since November. - BoE expands QE by £50 Billion to £375 Billion. - ECB cuts its benchmark rate from 1.00% to 0.75%, a historical low. It also reduced the deposit rate to 0%. The subsequent press conference showed a dovish sounding Draghi who might have left the road open for more rate cuts down the line this year.
Here are some notes from his opening statement:
- Inflation firmly anchored
- Economic growth weak, heightened uncertainty
- Increased collateral availability
- Renewed weakening of economic growth, outlook for a slow recovery for momentum dampened.
- Likes the EU Summit policy suggestions.
Video from this morning’s briefing.
Basically central bank actions support equities and commodity currencies. However, the EUR and GBP were pressured against the USD and JPY. As a result, AUD/USD, USD/CAD, and NZD/USD, and the respective JPY-crosses all traded sideways, directionless ahead of the US Non-Farm Payroll report.
The forecast for the US NFP June is 97K according to ForexFactory. We had mixed data so far this year. Dec, Jan and Feb showed promising data, while March, April and May were progressively more disappointing. The forecast of 97K is a minor improvement from last month, but it might require 150K+ data to be positive. This might give the market some risk-on in the beginning, but watch out for lurking followup headlines saying how the market faded the risk rally due to lower expectation of QE.
After all QE expectations might be more important to the markets right now. This is counter-intuitive and applies for the opposite scenario as well. Poor data ie. under 50K, would increase the case for QE and thus pave the road for risk-on trading. (pressure for USD, JPY, support for EUR and GBP, boost for commodities, and AUD, NZD, CAD).*CAD might be a bit more complicated because poor US data also weighs on the CAD, so unless oil surges, CAD might be dragged a bit.
This is conventional wisdom at the moment anyway.
S&P 500 futures set up an daily range between roughly 1375 and 1357. This may be the range from which to watch a breakout from after tomorrow’s NFP event risk.
EUR and GBP pressured
The EUR/USD slid sharply during the 7/5 US session, from 1.25 down to 1.2360 before stabilizing just below 1.24.
The GBP/USD fell from about 1.56 down to 1.55 before sitting around 1.5530 during the 7/6 Asian session.
Commodity currencies in ranges
AUD/USD trades within the daily’s range roughly between 1.0240 and 1.0330. This might be the range from which to watch for a breakout after the NFP.
The NZD/USD also has a daily range roughly between 0.8075 and 0.80.
USD/CAD sets up roughly between 1.0155 and 1.01.
1-Hour Charts at 9:00PM EDT (click to enlarge chart)
Top Panel: S&P500, EUR/USD, GBP/USD
Bottom Panel: USD/CAD, AUD/USD, NZD/USD