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Forex Analysis: Euro at Risk on ECB Rates Outlook, Pound May Rise

Forex Analysis: Euro at Risk on ECB Rates Outlook, Pound May Rise

Ilya Spivak, Head Strategist, APAC

The Euro may fall as the ECB hints at rate cuts ahead amid deepening recession while the British Pound finds support as the BOE opts not to expand QE.

Talking Points

  • Pound Follow-Through May be Limited as BOE Withholds QE Expansion
  • Euro Vulnerable if ECB Hints Rate Cuts Ahead Amid Deepening Recession
  • NZ Dollar Sold as Unemployment Rate Hits 13-Yr High in Third Quarter

Interest rate decisions from the Bank of England (BOE) and the European Central Bank (ECB) headline the calendar in European hours. June’s expansion of BOE asset purchases runs its course this month and investors expect the central bank will opt not to top-up the program this time around. A backdrop of improving economic data since October’s sit-down – particularly the sharp upside surprise on third-quarter GDP figures – seems to reinforce the likelihood of such a scenario. This may offer near-term support for the British Pound, although follow-though may be limited considering traders appear to have priced in a status-quo decision already (according to data compiled by Credit Suisse).

Meanwhile, the abysmal run of Eurozone PMI data over recent months will have markets pining for growth-supportive measures from the ECB. Traders’ priced-in expectations as well as economists’ baseline forecasts point away from action this time around however. That will shift the spotlight to commentary from ECB President Mario Draghi at a press conference following the meeting. Clues about forthcoming stimulus measures are likely to weigh on the Euro, whereas their absence may prove supportive. Needless to say, a surprise rate cut this time around will likely prove particularly detrimental for the single currency.

The New Zealand Dollar underperformed in overnight trade after a disappointing set of third-quarter Employment figures. The report showed the economy unexpectedly lost jobs in the three months through September, with overall employment down 0.4 percent from the prior quarter. The jobless rate shot higher to 7.3 percent, the highest in over 13 years. Forex traders took the outcome mean the RBNZ may be more likely to cut interest rates, eroding yield-based support for the Kiwi and sending the currency lower.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Unemployment Rate (3Q)

7.3%

6.7%

6.8%

21:45

NZD

Employment Change (QoQ) (3Q)

-0.4%

0.3%

-0.1%

21:45

NZD

Employment Change (YoY) (3Q)

0.0%

0.8%

0.6%

21:45

NZD

Participation Rate (QoQ) (3Q)

68.4%

68.4%

68.4%

23:00

NZD

QV House Prices (YoY) (OCT)

5.7%

-

5.3%

23:50

JPY

Machine Orders (MoM) (SEP)

-4.3%

-2.1%

-3.3%

23:50

JPY

Machine Orders (YoY) (SEP)

-7.8%

-4.9%

-6.1%

23:50

JPY

Current Account Total (¥) (SEP)

503.6B

761.3B

454.7B

23:50

JPY

Adjusted Current Account Total (¥) (SEP)

-142.0B

206.2B

722.3B

23:50

JPY

Trade Balance – BOP Basis (¥) (SEP)

-471.3B

-413.9B

-644.5B

23:50

JPY

Current Account Balance (YoY) (SEP)

-68.7%

-52.7%

4.2%

23:50

JPY

Bank Lending Banks ex-Trust (OCT)

1.1%

1.1%

1.2%

23:50

JPY

Bank Lending incl Trusts (YoY) (OCT)

0.9%

-

0.9%

0:30

AUD

Employment Change (OCT)

10.7K

0.5K

15.5K (R+)

0:30

AUD

Unemployment Rate (OCT)

5.4%

5.5%

5.4%

0:30

AUD

Full Time Employment Change (OCT)

18.7K

-

34.5K

0:30

AUD

Part Time Employment Change (OCT)

-8.0K

-

-19.0K (R-)

0:30

AUD

Participation Rate (OCT)

65.1%

65.2%

65.2%

2:00

JPY

Tokyo Average Office Vacancies (%)(OCT)

8.74

-

8.9

4:30

JPY

Bankruptcies (YoY) (OCT)

6.0%

-

-7.0%

5:00

JPY

Eco Watchers Survey: Current (OCT)

39.0

40.5

41.2

5:00

JPY

Eco Watchers Survey: Outlook (OCT)

41.7

42.7

43.5

Euro Session: What to Expect

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

6:45

CHF

Unemployment Rate (OCT)

2.9% (A)

2.8%

Medium

6:45

CHF

Unemployment Rate s.a. (OCT)

3.0% (A)

2.9%

Medium

7:00

EUR

German Exports s.a. (MoM) (SEP)

-2.5% (A)

2.5%

Low

7:00

EUR

German Imports s.a. (MoM) (SEP)

-1.6% (A)

0.4%

Low

7:00

EUR

German Current Account (€) (SEP)

16.3B (A)

11.1B

Low

7:00

EUR

German Trade Balance (€) (SEP)

16.9B (A)

16.3B

Low

7:45

EUR

French Trade Balance (€) (SEP)

-5033M (A)

-5286M

Low

12:00

GBP

BOE Asset Purchase Target (NOV)

375B

375B

High

12:00

GBP

Bank of England Rate Decision (NOV 8)

0.50%

0.50%

High

12:45

ECB

Deposit Facility Rate (NOV 8)

0.00%

0.00%

High

12:45

EUR

European Central Bank Rate Decision (NOV 8)

0.75%

0.75%

High

13:30

EUR

ECB President Draghi Holds Press Conference

-

-

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.2713

1.2852

GBPUSD

1.5946

1.6034

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

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

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