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FOREX: Euro Rally, Debt Crisis Fix Hopes to Be Tested at Italy Bond Sale

FOREX: Euro Rally, Debt Crisis Fix Hopes to Be Tested at Italy Bond Sale

2011-10-13 07:09:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • Australian Dollar Outperforms as Jobs Data Top Expectations
  • Italian Bond Auction to Test Markets’ EU Debt Fix Optimism
  • JPMorgan, Fastenal on Tap as Q3 Earnings Season Continues

Most major currencies consolidated in narrow ranges against the US Dollar overnight as the markets digested the preceding 24 hours of breakneck volatility. The Japanese Yen broadly recovered some lost having suffered most yesterday as a sharp rally in stocks-correlated currencies weighed on the safe-haven unit. However, it was the Australian Dollar scored the best performance on the session after September’s Employment report surprised sharply to the upside, showing the economy added 20,400 jobs to more than double economists’ expectations of a 10,000 increase.

The Aussie spiked as much as 0.7 percent higher against its leading counterparts immediately following the release but prices promptly erased over half of that increase after details of the report showed a 10.8K increase in full-time employment failed to erase the previous month’s 13.5K decline while traders maintained a dovish outlook on RBA monetary policy. Indeed, data compiled by Credit Suisse shows markets pricing over 100bps in interest rate cuts over the coming 12 months, with investors seeing a 73 percent chance of the first decrease as soon as November.

Looking ahead, the markets’ seemingly newfound confidence in the ability of policymakers to contain the EU debt crisis will meet its first tangible test as Italy sells bonds across 5- to 14-year maturities. The country was downgraded by Fitch and Moody’s last week, and a willingness to buy its debt will demonstrate that investors are genuinely more sanguine about the region’s sovereign risk profile. Auctions of similar securities so far in 2011 have drawn an average bid-to-cover ratio (the measure of demand for the debt being sold) of 1.5, with anything below that likely to weigh on the Euro and risk appetite at large.

Later in the session, the spotlight will turn to another batch of earnings reports, with two S&P 500 firms set to report third-quarter results before the European closing bell. Needless to say, the release from JPMorgan Chase will take the lion’s share of attention, but the outcome from Fastenal Co – a maker of industrial and construction supplies – ought to prove telling as well given the sensitivity of the firm’s performance to he broader global business cycle.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:30

NZD

Business NZ PMI

50.8

-

52.7 (R-)

21:45

NZD

Food Prices (MoM) (SEP)

-1.0%

-

-1.3%

23:50

JPY

Tertiary Industry Index (MoM) (AUG)

-0.2%

-0.3%

-0.3% (R-)

23:50

JPY

Bank Lending Banks ex-Trust (SEP)

-0.3%

-0.5%

-0.5%

23:50

JPY

Bank Lending incl Trusts (YoY) (SEP)

-0.3%

-

-0.5%

23:50

JPY

BOJ to Publish Minutes of Sept. 6-7 Meeting

-

-

-

0:00

NZD

ANZ Consumer Inflation Expectations (OCT)

3.1%

-

2.8%

0:30

AUD

Employment Change (SEP)

20.4K

10.0K

-10.5K (R-)

0:30

AUD

Unemployment Rate (SEP)

5.2%

5.3%

5.3%

0:30

AUD

Full Time Employment Change (SEP)

10.8K

-

-13.5K (R-)

0:30

AUD

Part Time Employment Change (SEP)

9.6K

-

3.0K (R+)

0:30

AUD

Participation Rate (SEP)

65.6%

65.6%

65.6%

2:00

CNY

Trade Balance ($) (SEP)

$14.51B

$16.90B

$17.76B

2:00

CNY

Exports (YoY) (SEP)

17.1%

20.8%

24.5%

2:00

CNY

Imports (YoY) (SEP)

20.9%

24.2%

30.2%

2:00

CNY

Entrepreneur Confidence Index (3Q)

129.4

-

132.4

2:00

CNY

Business Climate Index (3Q)

133.4

-

135.6

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:00

EUR

German Consumer Price Index (MoM) (SEP F)

0.1%

0.1%

Medium

6:00

EUR

German Consumer Price Index (YoY) (SEP F)

2.6%

2.6%

Medium

6:00

EUR

German CPI – EU Harmonised (MoM) (SEP F)

0.1%

0.1%

Medium

6:00

EUR

German CPI – EU Harmonised (YoY) (SEP F)

2.8%

2.8%

Medium

7:15

CHF

Producer & Import Prices (YoY) (SEP)

-1.9%

-1.9%

Low

7:15

CHF

Producer & Import Prices (MoM) (SEP)

-0.1%

-1.2%

Low

8:00

EUR

ECB Publishes Oct. Monthly Report

-

-

Medium

8:30

GBP

Visible Trade Balance (£) (AUG)

-8800M

-8922M

Medium

8:30

GBP

Trade Balance Non EU (£) (AUG)

-5350M

-5505M

Low

8:30

GBP

Total Trade Balance (£) (AUG)

-4250M

-4450M

Low

9:00

EUR

Italy to Sell 2016-2025 Bonds

-

-

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3638

1.3736

GBPUSD

1.5597

1.5852

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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