Currency Markets Still Focused On EU Debt Crisis, Slowing Global Recovery

By Ilya Spivak, Currency Strategist

Major Currencies vs. US Dollar (% change)

26 Sep 201 1 30 Sep 201 1

Talking Points
  • EUR : All Eyes on ECB, Traders Pricing in 25bps Interest Rate Cut
  • GBP: Bank of England Rate Decision in Focus as QE Bets Heat Up
  • JPY: Yen Remains Locked in Place as FX Intervention Risk Looms
  • CAD, AUD, NZD: Comm Bloc Still Anchored to Stock Market Moves

Most major currencies continue to show a strongrelationship with the S&P 500 . Mirroring the familiar dynamic establishedover recent weeks, this puts the spotlight once again on theevolution of the Euro Zone debtcrisis as well as US economicdata as sovereign risk and economic growth fearscontinue to guide sentiment across the financialmarkets.

In Europe, the focus will be on the European CentralBank interest rate decision, with traders lookingfor Jean-Claude Trichet and company to step in with additionalsupport as EU politicians continue to wrangle over ways to rebuildconfidence with seemingly nothing tangible besides empty rhetoricemerging so far. Traders are pricing in a 100 percent probabilityof a 25bps interest rate cut according to data compiled by CreditSuisse. The reintroduction of 6- and/or 12-month long-term repooperations (LTRO) to feed liquidity into the banking system is alsoa possibility.

Meanwhile, the US Employmentreport headlines the economic calendar in theworld’s top economy. Expectations call for the economy to adda meager 60,000 jobs in September, a narrow improvement from theflat result recorded in the previous month but hardly anencouraging result as the jobless rate continues to hoveruncomfortably over 9 percent. The health of the US economy continues to actas a proxy for the fate of the global recovery at large, makingdata out of the world’s top economy a key component inshaping market-wide risk appetite. Federal Reserve Chairman BenBernanke seemingly closed the door to further QE for the time beingat a Congressional hearing earlier this week, so a disappointingoutcome is unlikely to spur expectations of additional stimulus andso will probably prove negative for sentiment.

Elsewhere, the Bank ofEngland is also set to deliver its monetary policyannouncement. While a dovish set of minutes from last month’ssit-down has stoked expectations that the bank is prepared toreboot its quantitative easing program, the rate-setting MPCcommittee has previously waited for the publication of an updatedquarterly Inflation Report to make major changes in the policy mix,meaning they may wait until November to pull the trigger.The Japanese Yen remains at a standstill, breaking withotherwise dominant market themes as investors shy away from a firmdirectional bias amid fears of renewed government and central bankintervention.

EUR / USD

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

06 OCT

11:45

European Central Bank Rate Decision

2.4%

2.4%

High

07 OCT

10:00

German Industrial Production (YoY) (AUG)

6.4%

10.1%

Medium

07 OCT

10:00

German Industrial Production (MoM) (AUG)

-2.0%

4.0%

Medium

GBP / USD

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

06 OCT

11:00

Bank of England Rate Decision (OCT 6)

0.50%

0.50%

High

06 OCT

11:00

BOE Asset Purchase Target (OCT)

200B

200B

High

USD / JPY

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

07 OCT

-

Bank of Japan Rate Decision (OCT 7)

0.10%

0.10%

High

USD/CAD

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

06 OCT

14:00

Ivey Purchasing Managers Index s.a. (SEP)

55.0

56.4

Medium

07 OCT

11:00

Net Change in Employment (SEP)

15K

-5.5K

High

07 OCT

11:00

Unemployment Rate (SEP)

7.3%

7.3%

High

AUD/USD

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EXP

PREV

IMPACT

None

NZD/USD

Source: Bloomberg

Key Upcoming Events

DAY

GMT

EVENT

EXP

PREV

IMPACT

None

--- 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
DailyFX is the forex news and research arm of FXCM, Inc (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

Original Article: http://www.dailyfx.com/forex/fundamental/article/fundamental_trends_monitor/2011/10/05/Currency_Markets_Stil_Focused_on_EU_Debt_Crisis_Slowing_Global_Recovery.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

More from Currencies

Bitcoin Today: Prices Close to Flat in Low-Volume Trading

Bitcoin Today: Prices Close to Flat in Low-Volume Trading

Markets Wobble as U.S. Readies More China Tariffs

Markets Wobble as U.S. Readies More China Tariffs

Watch These Two Crypto Experts Fiercely Debate the Future of Regulation

Watch These Two Crypto Experts Fiercely Debate the Future of Regulation

Bitcoin Today: Prices Attempt to Rally Following Early Weakness

Bitcoin Today: Prices Attempt to Rally Following Early Weakness

Ether Prices Rally After SEC Director Says He Doesn't Consider It a Security

Ether Prices Rally After SEC Director Says He Doesn't Consider It a Security