Markets react to speeches from key officials
In what would have otherwise seemed a slow day saw volatility pick up early on from the Asian trading session and soon followed through to the European trading session.
Setting the ball rolling, Japanese Finance Minister, Taro Aso commented that the rapid depreciation of the Yen was concerning, especially the decline in the Yen last week. Immediately after the comments, the Japanese Yen strengthened after topping out at 118.332. The Greenback however managed to hold on to its gains, but other crosses, especially the weaker British Sterling and the Euro gave up its gains turning bearish on the intra-day perspective. At the time of writing, the USDJPY managed to bounce back but the rally soon fizzled out with the pair settling to follow the intra-day trends for the Yen and is now seen trading near the familiar support of 117.57. A break below this level could see the USDJPY decline further towards a technical support at 116.78.
The Swiss National Bank governing board member, Fritz Zubruegg came to the rescue as he commented that the SNB was determined to defend the cap of 1.20 against the Euro. Recent days price action of EURCHF had brought out questions about the SNB’s intervention as the pair was seen trading close to the floor for most of this week. The comment saw the EURCHF lift off from the lows of 1.20088 and was currently trading at 1.2026 after making an intra-day spike up to 1.203. Other CHF pairs including CADCHF and GBPCHF rallied on the news, as the SNB would be seen selling the Swiss franc, purchasing Euro’s.
ECB President, Mario Draghi, in a speech earlier this morning set the stage for intra-day declines on the Euro as the ECB viewed the current inflation levels to be quite challenging and reiterated that the Central Bank is ready to act if need be which includes changing the pace, size and composition of its asset purchases. The talk, indirectly hinting at sovereign bond purchases saw the Euro drop off after making a high near 1.255. EURUSD is currently trading near 1.2466 levels which makes for a familiar support level in the past. A break below this region could set the stage for further declines towards 1.237, the levels from where EURUSD bounced off earlier last week.
In other fundamental news, UK’s public sector net borrowing saw a marginal improvement as net borrowing excluding banks came out modestly better than expectations at £7.7 billion against market expectations of £7.8 billion. Overall, the net borrowing for the month of October was 2.4% lower compared to over a year ago. The net borrowing including banks however came out softly higher at £7.1 billion against expectations of £7billion.
There was not much of a reaction from the Sterling crosses, as the general theme of the day saw the Greenback stronger against the Pound.
Markets are generally expected to continue the current themes into the US trading session, which is expected to be relatively quiet with only data from Canada on the tap. Traders should however bear in mind that the previous two Friday’s saw profit taking on the Greenback result in sharp reversals towards the late US trading session.