Forex Afternoon Wrap – 03/09

ECB cuts inflation and GDP forecasts. Accommodative to expanding QE beyond Sep’16

Key Notes:

• Australia AIG services index 55.6 vs. 54.1 previously
• Australia retail sales m/m -0.1% vs. 0.4%
• Spain services PMI 59.6 vs. 59.3
• Italy services PMI 54.6 vs. 53.1
• French services PMI 50.6 vs. 51.8
• German services PMI 54.9 vs. 53.6
• Eurozone final services PMI 54.4 vs. 54.3
• UK services PMI 55.6 vs. 57.6
• Eurozone retail sales m/m 0.4% vs. 0.6%
• US Challenger job cuts y/y 2.9% vs. 125.4% previously
• ECB leaves minimum bid rate unchanged at 0.5%
• US Trade balance -41.9bn vs. -42.2bn
• US weekly jobless claims 282k vs. 275k

Later

• Final services PMI
• ISM non-manufacturing PMI

The Asian trading session saw the Australian retail sales data which declined -0.1% for the month, below estimates of 0.4%. The Aussie which has been under pressure since earlier this week remained soft with AUDUSD down -0.42% for the day. The currency was trading near the lows of 0.70. The Kiwi was however stronger in comparison gaining 0.12% for the day. There were no major economic releases from New Zealand.

The Japanese Yen was flat for the most part of the day and remained so after the US economic data release including the weekly jobless claims. USDJPY remains range bound and it is likely to continue to trade sideways in the run up to tomorrow’s monthly jobs report.

The British Pound was trading modest with losses of -0.13% for the day. UK services PMI was soft rising 55.6 below estimates of 57.6.

The European data included services PMI from various countries and overall, the Eurozone final services PMI was softly stronger at 54.4 beating estimates of 54.3. However the main focus of the day was the ECB press conference as the Central bank left the minimum bid rate unchanged at 0.05% while focusing on cutting inflation and GDP forecasts and striking a dovish tone as noted in our commentary earlier today.

The ECB staff economic projections saw the 2015 GDP forecasts revised down to 1.4% from 1.5%, 2016 GDP expected to grow 1.7% vs. 1.9%. Inflation outlook was also revised lower with the 2016 HICP inflation expected to be at 1.1% from 1.5% previously for 2015 while the HICP inflation for 2015 is expected to 0.1% vs. 0.3%. Draghi however noted that inflation is likely to pick up towards end of this year due to base effects but would remain subdued due to lower oil prices. The ECB’s press conference, as noted was dovish with Draghi noting that Eurozone QE could run well beyond September 2016 if necessary. The Euro fell to the lows of 1.114 during the press conference.

Other data released during the same time included the US weekly jobless claims which increased more than expected to 282k below estimates of 275k while the previous week’s jobless claims were revised lower to 270k from 271k as initially estimated. The weekly jobless claims hit a two month high, but overall the US labour market remains strong and steady. The US trade balance data showed a small shrinkage at -41.9 billion against estimates of -42.2 billion. The US Dollar index was trading strong across the board led by declines in the Euro. The index was up 0.56% at the time of writing, trading near 96.4

The later part of the evening will see some more data being released from the US including the final services PMI and the ISM non-manufacturing PMI data.