The USD bounced back across the board as short-dollar positions were trimmed in advance of Friday's pivotal US July employment report.  The NY session kicked off with a bang from the Bank of England, which surprised markets by expanding the size of its quantitative easing (QE) program, designed to drive down interest rates to support lending and the broader economy.  Expectations were that the BOE would at least pause its asset purchase program at the completed GBP 125 bln level, but they went ahead and increased it by GBP 50 bln to a maximum of GBP 175 bln.  The move unnerved traders who took it as a sign that the BOE feared deflationary pressures and foresaw a weaker recovery than many expected.  GBP/USD took a quick dive from about 1.6970 to around 1.6825 after the announcement and then bounced back to 1.6890, before grinding lower on the day to finish out near 1.6780.  The ECB rate decision was much less dramatic, with rates on hold and no new credit support initiatives.
      
US weekly jobless claims posted a better than expected improvement, dropping from 588K to 550K when 580K was forecast.  Risk assets initially rallied on the ostensibly better claims data, but stocks and JPY-crosses, two key risk trades, failed to break above technical resistance levels at their highs for the current rally.  Profit-taking selling followed, with stocks closing down about 0.5% and EUR/JPY dropping off from just below 138.00 to finish out near 136.90.  The position reduction in riskier trades evolved into a more sustained USD rebound, with USD/JPY holding firm despite cross-JPY selling, and EUR/USD moving down from near 1.4430 to a low near 1.4330.             

The data highlight in Asia will be the RBA's quarterly monetary policy outlook, but most markets will be treading water ahead of the US NFP report, which traders will use to decide whether the current optimism is justified.      
      
Upcoming Economic Data Releases (Asia Session) prior expected

  • 8/6/2009 23:30 AU  AiG Perf of Construction Index  JUL  42.6 - -
  • 8/7/2009 1:30 AU  Reserve Bank Quarterly Monetary Policy Statement  7-Aug