Search ForexCrunch

Sean Callow, an analyst at Westpac, explained that Risk appetite was poor in Europe and the US.

Key Quotes:

“The euro bounced on ECB president Draghi’s confidence on inflation but then reversed, not helped by a selloff in Italian bonds. AUD/USD faded to 0.7250 late NY. Oil prices hit highs since 2014. Today China reopens but the regional calendar is low key, ahead of US data on consumer confidence, house prices and manufacturing sentiment.”

Currencies and macro themes

“ECB President Draghi gave his regular economic update to the EU Parliament and began with phrases lifted from the ECB policy statement, maintaining its neutral bias. However, he added that the stable profile of headline inflation forecasts conceals “a relatively vigorous pick-up in underlying inflation” and underscored an improving labour market and signs of shortages, supporting the ECB’s expectations of higher wages.

EUR/USD jumped from 1.1750 to 1.1815 – a three-month high – on Draghi’s speech but completely retraced a few hours later. The euro might have suffered somewhat on renewed unease over Italy’s fiscal plans, with the 10 year Italian bond yield jumping 12 basis points to 2.92%. Sterling outperformed, up 0.3% over the day.

USD/JPY rose from 112.50 to 112.75, supported by resilient US bond yields and brushing aside the fall in equities. AUD/USD slipped from 0.7280 to 0.7255. Underperformer NZD fell from 0.6675 to 0.6642. AUD/NZD rose from 1.0890 to 1.0920.

Brent crude oil rose 3.4% to $81.47/bbl (a high since 2014) after OPEC indicated less urgency to boost output. CAD weakened slightly on the day anyway.

Germany’s September IFO survey was stronger than expected, holding close to August’s levels. Among the main components: business climate 103.7 (vs exp. 103.2, previous 103.9), expectations 106.4 (vs exp. 106.0, prior 106.5).

The Dallas Fed’s manufacturing survey slipped to 28.1 in Sep from 30.9, with some noted pullbacks in new orders and employment.

Interest rates

The US 10yr treasury yield continued to range sideways a four-month high, between 3.06% and 3.09%. 2yr yields also ranged sideways but did nudge 2.83% – a fresh high since 2008. Fed fund futures yields continued to price 100% chance of a hike on Wednesday, while the chance of another hike in Dec is priced at 90%.

Event risk

Australia’s very quiet calendar week continues. Hong Kong and Korea markets are closed for a holiday.

In the US we will see a flurry of data, of which most interest should be in the Conference Board survey of Sep consumer confidence. The August headline of 133.4 was a high since 2000, in contrast to the softer U Michigan survey. The consensus forecast of 132 would thus be only a trivial pullback. Also due are the Richmond Fed’s manufacturing survey for Sep (f/c a robust +21) and July house prices from S&P CoreLogic. The 20-city index has risen steadily since 2012 but in June was only about 3% above the 2006 high.”