Market News & Insights
10 November 2014

EUR in Focus as ECB Announces Covered Bond Activity

EUR/USD 1.2477
GBP/USD 1.5891
GBP/EUR 1.2736 (0.7851)
EUR/CHF 1.2028
GBP/CHF 1.5.19
GBP/AUD 1.8331

The USD was dominant through much of last week’s session until a somewhat mixed Jobs report on Friday initiated some small USD selling. This week brings us Veterans Day in the US (tomorrow) and while tomorrow is the only officially holiday, the lack of major data points and a quieter holiday period may well see USD under further selling pressures. Equity markets remained buoyant in the US trading around all-time highs as lose monetary policy from major central banks continues to support risk, even if the Fed are going the opposite direction. Overnight Asian markets were mixed, the Nikkei traded lower as JPY gained against the USD following the somewhat mixed labour market report from Friday’s US session carried into the Asian open. Thus far European markets have started the day firmer, EURUSD has managed to pull itself back above the 1.2400 level to test resistance ahead of 1.2500, EURGBP has been holding its new range between .7865 and .7800 while GBPUSD selling has stopped in the historical 1.5820-70 support zone.

Friday’s Non Farm Payroll report threw up some mixed data, the monthly addition to payrolls rose 214k versus an expected 235K, while the jobless rate dropped to 5.8% and a fresh six year low. Labour market participation grew, while wage growth was less than expected and surprised to the downside. This data covering one area highlights the apparent mixed pace of recovery in the US, on the front of things the data looks good, 6 year low in unemployment and rising participation is good news, however the mixed pace growth and slow growth in wages provides mixed messages. Until we some consistency across all US data the Fed are likely to remain content and to maintain an ultra-low interest rate environment meaning USD direction will likely continue to be pushed and pulled by varying interest rate expectations. With that the USD has been lower starting the week after treasury yields fell following Fridays NFP print. US data remain light until later in the week with focus on Fed speakers for now, the Fed’s Rosengren speaks this evening.

A quieter US session is expected this afternoon but the European session still has the potential to stir volatility in EUR crosses. The ECB will publish the size of last weeks covered bond purchases, the ECB reported €1.7bln in purchases their first week in the market which was a rather underwhelming figure for looking for an aggressive QE program from the central bank, certainly a pace as tepid as that would not be sufficient to tackle the current disinflation environment in the region, confirmation the ECB are maintaining this pace should provide the single currency with some short term lift, that is until the ECB confirm they are taking a more aggressive and sizable position on asset purchases. The Sentix investor confidence survey also crosses the wires for the Eurozone and continued declines in the print are expected.

We have a bigger week for GBP as well with the BOE Inflation report due for release on Wednesday. A rise in inflation concerns in the UK has seen UK rate hike expectations pulled back resulting in the pound losing ground against higher yielding currencies and the USD, where the Fed and BOE are on very similar rate paths. Any confirmation of the BOE’s expectations may well give GBP some room to rally, especially as the tone for the currency has been very subdued, despite data still confirming a reasonable pace of growth across the UK. Mark Carney is currently speaking to press in Basel ahead of this week’s G20 meeting. Thus far there has been little headline grabbing comments, we will be keeping our focus on comments on global growth trends and off courser any signs of concerns on the Eurozone impacting UK growth.