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Market Session Recaps

London Session

Fri, Oct 2 2009, 10:48 GMT
by Forex.com Research Desk

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A pairing back of risk appetite has characterized both Asian and European sessions. The recent bout of weaker than expected US economic data has strengthened concerns about the strength of the global recovery outside of the Asian region pulling equity markets lower and driving the JPY higher across the board.
These doubts have led to fears that this afternoon's key US non-farm payrolls data may be on the poorer side of the printed -175K market median. The USD is firmer against the higher risk currencies such as the AUD, NZD, CAD and GBP on the back of the poorer market sentiment. The EUR has received a boost this morning from a rumour that the ECB may be discussing tightening policy. While it is necessary that exit policies be lined up, near-term ECB easing is difficult to contemplate given that Eurozone CPI currently stands at -0.2% y/y. This rumours is also in contrast to speculation that the strength of the EUR is being seen as problematic by the Eurozone officials and that this weekend's G7 meeting in Istanbul may include discussions to at least underpin support for the US Treasury's strong dollar policy.

French Finance Minister Lagarde has been the latest official to voice her support for the US Treasury's strong USD policy. These remarks echo those made by ECB President Trichet recently and will increase nervousness that the weekend G7 meeting will outline support for USD in deference to a preference for a softer EUR. EUR/USD eased back to 1.4520 in early London trading but subsequently clawed back to 1.4560.

Japanese August unemployment unexpectedly fell back from its record highs, shifting down to 5.5% from a previous 5.7%. Japanese household spending has also strengthened posting a rise of +2.6% y/y in August. This will underpin hopes for the Asian economic recovery.
Previously there had been little evidence that Japanese consumption was strengthening, while JPY strength has been undermining expectations for the export sector. The JPY has continued to gain ground this morning on the back of heightened risk aversion.

UK data this morning have brought further evidence of stability in the housing sector with the Nationwide index obtaining a flat y/y reading in Sept. Counter to this better news was a poor reading (46.7) for the small construction sector and further news from the BoE suggesting that the UK's consumers' saving rate is on the rise. BoE data shows that UK household repaid GBP7.0 bln of housing equity in Q2. This rise in debt repayments can be expected to continue given the huge erosion in wealth since the financial crisis. As fiscal stimulus dries up into 2010, higher savings will undermine the strength of the recovery in domestic demand and increase the risk for slow, bumpy economic recovery. Cable is lower vs the USD following a choppy morning, remaining in its technical downtrend.

The afternoon, the US payrolls data are key. US factory orders data are also due.

Published on  Fri, Oct 2 2009, 10:52 GMT

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