- Jitters over reputed Chinese reserve diversification hit USD early
- ECB holds rates steady at 1%, will not add spread to September 1-year fixed refinancing operation; road ahead bumpy, recovery gradual
- US weekly jobless claims fall 4,000 to 570,000; continuing claims up 91,000
- PBOC adviser Fan Gang: China unlikely to exit stimulus early; growth 8% next year; export growth to return in 2010.
- Fitch cuts Portugal’s ratings outlook to negative from stable
- ISM non-manufacturing index rises to 48.4 in August; slightly firmer than expected
- ECB’s Stark: Lowest point in recession passed; inflation to hold below 2% in 2010 and beyond; too early for all-clear on economy
- Geithner to meet with BRIC FinMins in London; Russian finance source tells Reuters
- JP Morgan global all-industry PMI 52.1, highest in 20 months.
- Irish support for Lisbon Treaty (quasi-EU constitution) falls to 46%, down 8%
- Gold nears $1000 before stall. Spot tops at $997
- Oil unchanged at 68.05, S&P 500 rallies late, closes up 0.9%, at 1003
It was the best of times, it was the worst of times. Dollar bears liked their chops after getting all lathered up about reports that China’s sovereign wealth fund was buying gold and doing its utmost to avoid the dollar. Steady sales of EUR/USD by China belied that talk, however. Steady Asian selling above the 1.4300 level was seen this morning (we reached 1.4348 right out of the gate). They sold all the way down as well, with last reports in the 1.4290s. Prices slumped after the ECB announced it would not charge banks a premium for 1-year cash at its next repo operation. Dealers interpreted that action as a sign the ECB is still trying to nurse very troubled banks back to health. Rates are also likely to stay low for a long time ahead, traders concluded.
Very upbeat comments from widely respected Chinese economist Fan Gang were unable to revive risk appetites this mornign, adding further selling pressure to EUR/USD and EUR/JPY.
EUR/JPY stalled exactly at its 50% retracement of the 134.15/131.00 decline at 132.55 before dipping.
What does today’s action mean for tomorrow’s employment report? Probably not a lot. Dealers continue to buy strength and sell weakness in a market that is essentially stuck in a rut. A good number will have traders jumping on a moving train at higher levels while 1.4450 and 1.4500 barriers continue to corral price action.
Given the huge gold move this week, we’d suspect most are long a bit of EUR/USD or AUD/USD “just in case” the USD plays catch-up. That makes the downside for those pairs the most vulnerable tomorrow, in my view.
New York ranges:
EUR/USD: 1.4237/1.4348
USD/JPY: 92.34/79
GBP/USD: 1.6305/1.6396
AUD/USD: 0.8367/0.8417
