EUR to extend its advance? - BBH

Analysts at BBH note that the euro is extending its four-day advance into today's session as the gains have carried it to the $1.1880 area, which corresponds to 50% of the drop since reaching almost $1.21 on September 8 and bottoming last Friday near $1.1670.  

Key Quotes

“The next retracement objective is near $1.1930.  We anticipated this euro bounce and suspected that late longs are vulnerable to tomorrow's US CPI and retail sales report that will be impacted by the storm, and the tight inventory/sales balances for some household goods.  Again, we point out that while the September jobs report was skewed by the storm, the upward revision to August average hourly earnings was not.”  

“The enthusiasm for Spanish assets is somewhat diminished today.  The bonds are flat while European bonds are mostly firmer.  The stock market is off, but holding up better than most other major European markets.  Rajoy has taken a measured step in the face of Catalonian officials signing a declaration of independence and then many signing a decree suspending it.  Rajoy has given officials until Monday morning to clarify their stance.  If they insist on claiming independence, they will be given another three-day grace period to reconsider before Rajoy sets into motion the process that would force the Catalan administration out of office.”

“Rajoy appears to have the opposition Socialists support.  Rajoy did appear open to the Socialist proposal for a committee to be established to discuss regional powers, but not to enable a referendum for independence.”  

“Following the recent national reports from Germany, Italy, and Spain, it is not surprising that eurozone industrial output surged in August.  The 1.4% increase was the largest since January, and the July series was revised to 0.3% from 0.1%.  These kinds of reports that show the eurozone economy continues to expand at a robust and above-trend pace are a bit beside the point, ironically.  The message from the ECB's leadership is about disappointment with price pressures, not sluggish growth.”