Key Notes for November 17th
- Japan GDP q/q declines -0.4%; Preliminary GDP price index y/y rises 2.1%
- ECB’s Mersch: ECB needs time for monetary policy measures to work
- ECB’s Mersch: Full-blown QE a theoretical possibility
- US Empire state manufacturing index soft, rising 10.16 vs. 12
- ECB’s Draghi testimony to the Committee on Economic and Monetary affairs
The forex markets opened on a gloomy tone weighed down by Japan’s GDP contraction during the third quarter, declining -0.4%. The Yen, which initially weakened on Monday’s Asian session quickly retraced from the lows to stabilize towards the London open. Speculation on Shinzo Abe’s snap election, delay to the sales tax hike in October 2015 continues to be the main theme in the FX markets. Official confirmation on any of the above could see the Yen decline considerably.
Bloomberg reports that Japanese economy minister Akira Amari told reporters that a new stimulus package worth 3 trillion Yen ($26bn) could be put together. There is also a high chance that the Japanese Premier will be hosting a press conference tomorrow (18th November), which is expected to bring some major volatility to the Yen crosses.
Trading for most of the day was subdued with no major market events scheduled for the European trading session. The Greenback was broadly mixed, strengthening against the Yen, Aussie and the Kiwi Dollar. New Zealand posted a stronger than expected retail sales on a quarterly basis, rising 1.5% beating estimates of 0.8% and up from 1.1% previously. Core retail sales also ticked higher posting 1.4% vs. 1% expectations and up from 1.2% previously.
Any topside gains in the Aussie dollar, even on a weaker Greenback could risk verbal intervention from RBA Governor Stevens who is scheduled to speak later in the evening today.
The EURUSD and the GBPUSD have been drifting on lack of any fundamentals from Europe but remain well supported after last Friday saw a sudden reversal in the Greenback which helped lift the currencies from their lows. ECB Bank official, Yves Mersch commented today reminding the markets that the ECB would begin its ABS purchases this week while stating that the ECB needs time for its monetary policy measures to take effect before the central bank can mull new measures but affirmed that a full blown Quantitative easing was possible in theory. The Euro’s reaction was mostly muted.
ECB President Mario Draghi is expected to deliver his testimony before the committee on Economic and Monetary affairs in Brussels and any hints to QE, especially in terms of sovereign bond purchases could likely weigh in on the single currency.
The EURCHF pair was trading at 1.2011, close to the SNB’s floor of 1.2 and one which the SNB has vowed to maintain. Any negative reaction to Draghi’s speech could see the EURCHF test the SNB’s floor.
The Empire State manufacturing index came out weaker than expected rising 10.16 vs. expectations of 12, but remains up from previous month’s reading of 6. The Greenback remained steady and did not react much to the news as markets focus on the monthly industrial production numbers which is expected to be soft at 0.2%, after a 1% increase last month.
