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Idea of the Day

The main risk today is on the euro with the ECB meeting and subsequent press conference. The ECB President has a habit of dropping the odd verbal bombshell, which have in the past impacted the currency, even without specifically referencing it. This is the risk today. Remember that in July the ECB instigated forward guidance, indicating that interest rates would remain low for the foreseeable future. Although EURUSD has risen to touch a 9 month high yesterday, it has dragged behind the performance of the yen, pound and Swiss franc so on a broader trade-weighted measure, the rise in the euro is not as troublesome. Nevertheless, the ECB President may want to drop a warning on the dangers of continued currency strength. On the other side, there are increased signs that splits in the PDL may allow the Italian PM to win a confidence vote in parliament, which is likely later today.

20131002 Table

Data/Event Risks

EUR:  The ECB meets today to discuss interest rates. The focus is more on the lending side and the potential for the ECB to announce more lending operations to counteract the fall in excess liquidity as 3 year loans are re-paid. Press conference focus will be for veiled comments on this and the strength of the euro. Eyes are also on Italy and a likely confidence vote in the parliament.

GBP:  PMI construction data not usually a major one, but has been buoyant in recent months and given recent government announcements on the housing market, this could well continue into today’s data.

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GBP:  For now at least, sterling continues to see decent underlying demand. This was evident in the buying seen straight after the weaker than expected PMI data on Tuesday. Over the past week, it has notably outperformed the dollar and the other majors.

GOLD:  Taking something of a beating at the start of the US session, making a near two-month low at $1,283.86. The move was perhaps another indication that the traditional safe havens are not behaving in the same way as before. Gold is now lower than prior to the Fed’s non-tapering decision.

JPY:  The yen losing ground after the decent Asia session yesterday, with other currencies finding more of a bid on the back of the US budget woes. The overnight session has seen the yen rebound, USDJPY moving below the 97.60 area in late Asia trade.

Further reading:

AUD/USD hit by weak Australian data

ISM Manufacturing PMI continues rising – USD recovers