Forex headlines for August 7, 2014:
- Draghi says ECB has started to intensify preparations for ABS purchases
- Draghi says latest data shows slowing of growth momentum
- Draghi leaves inflation forecast unchanged
- US initial jobless claims 289K vs 304K expected
- Canadian Ivey PMI nsa July 50.4 vs 49.7 prev
- Canadian building permits June m/m +13.5% vs -2.0% exp
- NATO’s Rasmussen calls on Russia to “step back from the brink”
- US and French officials considering new military action in Iraq
- Donetsk people’s republic leader resigns, militant Ukranian named replacement
- US June consumer credit +$17.25B vs +$18.65B expected
- Gold up $7 to $1312
- WTI crude up 72-cents to $97.64
- US 10-year yield closes down 5 bps to 2.42%, lowest since June 2013
- German bund yields hit 1.06%
- JPY leads, AUD lags badly
For all the fuss, the moves in FX weren’t very large outside of the Australian dollar (but that was all in Asia). The excitement was in bonds and stocks as yields fell to the lowest levels of the year and the stock market slump continued (European stocks now about 10% from the peak).
The focus was on the euro heading into the session and the market was looking for a signal that QE was coming around year-end. What Draghi offered was talk that officials are accelerating preparations and that they intend to implement ABS buys but that nothing is final. At the same time the inflation outlook was left unchanged. That last headline boosted EUR/USD up to 1.3394 but sellers were waiting at the big figure and knocked it down as low as 1.3337. To me that’s the right reaction but some broad US dollar selling late in the day helped the pair recover to 1.3365.
USD/JPY suffered as stocks and yields fell. The pair was at 102.35 early in US trading but slipped to 102.00. An iron bids at the big figure is holding so far with Japanese firms said to be buying.
Cable was glued to the floor. A large sale, likely tied to the fixing, hit at midday in the US and led to a quick slide to 1.6830 from 1.6850. Even as US dollar sales boosted the euro, cable struggled to make any gains. The good news was that yesterday’s low of 1.6822 held.
USD/CAD slid to a test of 1.0900 but betters there were ready and picked the pair right back up to 1.0938 in less than 2 hours. The Canadian employment report is due tomorrow and most of the fast money is in longs so expect a bit of selling ahead of the announcement, all else being equal.
The Australian dollar took a beating after the jobs report, falling nearly a cent but it was mostly stable in US trading and even crept up to 0.9279 from the overnight low of 0.9259.
Gold benefited from the safe haven bid and oil climbed on geopolitical concerns.
