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Commodity Dollars Soar as Risk Trends Gyrate Before ECB, NFP Results

Commodity Dollars Soar as Risk Trends Gyrate Before ECB, NFP Results

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Commodity Dollars Stage Recovery as Risk Appetite Firms Before ECB, NFP
  • Euro to Resume Decline on Strong ECB Stimulus Pledge, Rebound Otherwise
  • See Economic Releases Directly on Your Charts with the DailyFX News App

The sentiment-linked Australian, Canadian and New Zealand Dollars outperformed against their leading counterparts in overnight trading hours. The Kiwi proved strongest on the session, rising as much as 1.4 percent on average against the majors. The Aussie and Loonie added 0.6 and 0.8 percent, respectively.

The move did not appear to be rooted in any single catalyst. Rather, price action probably reflected a shift toward “neutral” on sentiment trends within the FX space as traders braced for the passing of the week’s top event risks. The spotlight initially falls on a policy announcement from the European Central Bank and moves to US Employment figures tomorrow.

The central issue in play is whether the “risk-on” theme entrenched since mid-2012 and arguably driven by generous Fed stimulus is able to survive after the US central bank concludes QE3 asset purchases later this month. For the ECB, that means investors will want to see evidence of a big-enough accommodation effort able to replace that of the US central bank on the horizon.

So far, the markets have been decidedly underwhelmed by the easing measures that Mario Draghi and company introduced in recent months. This is not surprising: uptake on the ECB’s first TLTRO operation fell short of expectations and the central bank’s balance sheet is only a hair above a three-year low. If it is to underpin risk appetite in earnest, the Eurozone monetary authority will have to do far more.

With that in mind, the markets will be most keen to hear details of the ECB’s planned purchases of ABS and covered bonds. Against this backdrop, the overnight swell in risk appetite probably reflects the perceived threat of holding bets against sentiment-linked assets in the event that the ECB delivers. That would mean a commitment to large-scale buying of securities and a strongly-worded pledge to do more if need be. A lackluster outcome may quickly send sentiment-geared FX back down however.

As for the Euro itself, the single currency’s reaction to whatever the ECB unveils may prove to be a bit more straight-forward. The promise of an aggressive expansionary push is likely to sink the unit against its leading counterparts. Alternatively a more modest effort may trigger liquidation on highly elevated speculative net-short positioning and foster a rebound.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

23:50

JPY

Loans & Discounts Corp (YoY) (AUG)

2.13%

-

1.95%

23:50

JPY

Monetary Base (YoY) (SEP)

35.3%

-

40.5%

23:50

JPY

Monetary Base - End of Period (¥) (SEP)

252.6T

-

243.5T

0:00

NZD

ANZ Commodity Price (SEP)

-1.3%

-

-3.3%

1:30

AUD

Building Approvals (MoM) (AUG)

3.0%

1.0%

2.1%

1:30

AUD

Building Approvals (YoY) (AUG)

14.5%

12.7%

9.6%

1:30

AUD

Trade Balance (A$) (AUG)

-787M

-800M

-1075M

5:15

AUD

RBA Annual Report

-

-

-

European Session

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

8:30

GBP

Markit/CIPS UK Construction PMI (SEP)

63.5

64

Medium

9:00

EUR

Eurozone PPI (MoM) (AUG)

-0.1%

-0.1%

Low

9:00

EUR

Eurozone PPI (YoY) (AUG)

-1.2%

-1.1%

Low

11:45

EUR

European Central Bank Rate Decision

0.05%

0.05%

High

11:45

EUR

ECB Marginal Lending Facility

0.30%

0.30%

Medium

11:45

EUR

ECB Deposit Facility Rate

-0.20%

-0.20%

Medium

12:30

EUR

ECB Pres. Draghi Holds Press Conference

-

-

High

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.2504

1.2560

1.2591

1.2616

1.2647

1.2672

1.2728

GBPUSD

1.6020

1.6110

1.6148

1.6200

1.6238

1.6290

1.6380

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

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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