EuroZone finance ministers want stimulus train to ride on through 2010. ECB up tomorrow.


MAJOR HEADLINES – PREVIOUS SESSION

  • US Aug. Vehicle Sales totaled 14.1M vs. 13.3M expected and 11.3M in Jul.

  • Australia Q2 GDP out at +0.6% QoQ vs. +0.2% expected

  • Norway Aug. PMI out at 42.3 vs. 51.0 expected and 50.1 in Jul.

  • UK Aug. Construction PMI out at 47.7 vs. 48.0 expected and 47.0 in Jul.

  • EuroZone Q2 GDP out at -0.1% QoQ as expected

  • US Weekly MBA Mortgage Applications fell -2.2% on the week

  • US Aug. Challenger Job Cuts fell -13.8% YoY vs. -5.7% in Jul.

  • US Aug. ADP employment Change out at -298k vs. -250k expected and -360k in Jul.

  • US Q2 Final Nonfarm Productivity adjusted up to 6.6% vs. 6.4% originally

  • US Q2 Final Unit Labor Costs adjusted down to -5.9% vs. -5.8% originally


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • US Jul. Factory Orders (1400)

  • US Weekly DOE Crude Oil and Product Inventories (1430)

  • US Fed's Lockhart to Speak (1530)

  • US FOMC Meeting Minutes (1800)

  • US Secretary of Treasury Geithner to hold briefing on G-20 meeting (1900)

  • Australia Aug. AiG Performance of Service Industries (2330)

  • Australia Jul. Trade Balance (0130)

Market Comments:

How we got to where we're at...

Yesterday's stark reversals nearly across the board have been followed up with light consolidation in today's European session, as the market doesn't seem to want to make things easy for the bears with immediate follow-up on the moves yesterday, with the exception of the JPY crosses which are pressing lower here around the US open. The positive GDP data out of Australia had the AUD as much as one percent off its lows vs. the USD and JPY by the European open, but with the S&P trading down again before the open, the brief rally is fading.
Other crosses were also reasonably rangebound, with the exception of the falling EURGBP in today's session - where GBP caught a bid to follow up on yesterday's resilience to the single currency. 0.8700 is the next key support.

ECB on hold

We're seeing more follow-up on the very cautious words of late from the ECB about the outlook going forward: FT leads with a piece today discussing the EU Finance ministers' desire to maintain as much stimulus to the economy as possible "in the course of this year and next year. Then we have to agree on an exit strategy." These words failed to weigh on the EURUSD, which consolidated a bit from yesterday's lows, but perhaps the weakness in EURGBP is a sign that the EUR will trade on the weaker side of the middle of the pack in the G-10 currencies? As for EURUSD: will a trend ever develop? It is abundantly clear that the ECB is not going anywhere anytime soon and tomorrow's ECB meeting/press conference will very likely follow up on the stream of dovish comments. If the world continues to dive into risk averse mode, this isn't likely to hurt the Euro against the higher beta currencies like the Scandies and commodity currencies, but EURUSD should see a much bigger move lower here if risky assets continue to sell off.

ADP and NFP

The US ADP Employment Change number failed to provide any rays of hopes on the employment situation in the US, though we must remember that this number failed to do a good job of predicting the official Nonfarm payrolls number the last time around for July (ADP was -371k and NFP was -247k. ). The recent trend of negative reactions to positive data suggests that the market needs real upside shockers to renew the green shoot hopes and fantasies that have built all summer long.

Limbo or Momo?

In general, it appears that currencies are unwilling to follow up on the momentum (momo) generated yesterday.
Are we really going back to go nowhere mode (limbo) for a couple of days as the market awaits the US employment report? It's hard to imagine that we don't either get a reasonably strong confirmation or rejection signal on this move in favor of USD strength ahead of the Friday event risks. The latest noise on the wires from all corners is on the G-20 meeting this weekend. The various nations are throwing around plans to regulate banks and talk of exit strategies (read: "double-dip guaranteeing strategies") for the world's central banks and governments.

Chart: USDCAD

USDCAD is up challenging that 1.1100/20 area again on weakness in the commodity currencies and a new sell-off in oil. A close above that level looks significant for further progression towards perhaps 1.1400 or more. The 55-day moving average is up just above 1.1100 as well, but USDCAD doesn't seem to have much of a habit of paying attention to that MA. If oil continues below 67 dollars/bbl and equities remain in a sour mood, it's hard to see the pair not continuing its ascent. Structurally, the failed attempt to maintain new lows below 1.0800 recently has neutralized the old bearish trend, but we've no bullish confirmation just yet. 1.1120+ would be a first step.

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