Market’s Attention Turns to ECB; Russia Combats Sanctions

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The Australian dollar was the big loser overnight in an otherwise quiet pre-ECB trading session. The Aussie July jobless rate rose to 12-year highs of 6.4% – the highest since 2002 – as expectations were centered around a more suitable 6.0% print. Both AUDUSD and AUDJPY lost ground but USDJPY did stabilize following Wednesdayafternoon’s sharp sell-off. Further boosting the JPY as global equities fall, there were rumors of a large $3B purchase in JPY futures contracts. European and Asian equities were a sea of red but that wasn’t enough to shake up FX markets as the world prepared for both the European Central Bank and Bank of England rate decisions.

Not surprisingly, the Bank of England held rates firm at 0.5% and did not release a statement from their August meeting. GBPUSD was unchanged on this news. The European Central Bank also kept rates firm at 0.15% but Mr. Draghi took to the mic at8:30am EST for his usual press conference. The single currency was unchanged as Mr. Draghi declared the ECB remains committed to unconventional tools to assist the economy. Mr. Draghi said the ECB intensified prep work related to ABS purchases but that was not enough to generate any downward momentum for EURUSD. Despite minor improvements in labor markets, the central bank expressed their concerns over the high unemployment rates that continue to plague countries like Spain and Italy. In an otherwise benign statement to the press, the head of the ECB also expressed concern over geopolitical risks and exchange rate developments. Like last week’s Federal Reserve meeting, today’s ECB and BOE were largely non-events as policy makers remain in a summer holding pattern.

The big events still to come this week are the Canadian July jobs report and Chinese July inflation (released after hours Friday). Canadian jobs takes top billing tomorrowmorning as analysts anticipate +24K net jobs created for July, which should hold the unemployment rate steady at 7.1%. That would be an improvement over last month when the report showed a net loss of 9.4K in June. Over the last seven to ten trading sessions, the Loonie has lost ground to most major currencies as Mr. Poloz can take a sigh of relief watching the CAD resume its longer term weakening trend. US news has been scant this week following last week’s FOMC meeting but the dollar has given up a bit despite US equities losing more than 3% following a strong corporate earnings season. US jobless claims ticket down to +289K after last week’s +303K surprise.

Finally, looking toward geopolitical events around the world, Mr. Putin took a big step yesterday as Russia slapped import bans on an array of food goods from the U.S. and Europe. The restrictions include all cheese, beef, vegetables and other dairy products as Mr. Putin looks to strike back at sanctions over the conflict in Ukraine, where at least 10 more were killed in overnight fighting. This on-going war poses a serious threat to any European recovery and yesterday’s actions by Mr. Putin should cause great concern for European leaders. In the Gaza Strip, a 72-hour cease fire continues today following negotiations headed up by Egyptian leaders (who knew?). Discussions are on-going in Cairo seeking a long term solution to end the fighting that has raged on for 29 days.

Further reading:

USD/CAD: Trading the Canadian Employment Change

ECB Live Blog – Draghi conveys “business as usual” message but explains why EUR/USD should fall

Get the 5 most predictable currency pairs

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