Dollar index unwinds ahead of GDP data

The main theme in the FX space was a minor pullback in the greenback on some fairly dovish Fed comments.

The US dollar index lost around 0.2% to 80.49 and remains fairly well supported above 80 heading into the business end of the week. Some positive data prints from Europe and more taper talk were at the forefront of the FX moves. Fed member Williams said he wants to see a pretty convincing case that the economy can grow faster than recent trend before reducing asset purchases. Meanwhile, Pianalto hopes the recovery will accelerate to allow the Fed to taper. This is probably the most dovish we’ve heard Fed members since the meeting and as a result weighed on the USD.

Later today we have the US Q3 GDP reading which is expected to show a 2% rise. Given the recent surprises to the upside, some analysts feel there is upside risk to this data. We also have unemployment claims due out with the market looking for a fall to 336,000. On the Fedspeak side of things we have Dudley and Stein speaking which makes up for a busy session ahead for the greenback.

AUD drops on jobs data

The AUD has been in focus this morning with the local jobs numbers being released. AUD/USD has been consolidating around 0.95 for most of the week and finally saw some moves on the back of the jobs numbers. The unemployment rate came in in-line with consensus at 5.7% but the employment change fell well short of consensus with just 1,100 jobs added (as opposed to 10,000 expected). A sharp drop in full time jobs remains a concern which most jobs created being part-time. While this reading missed consensus, the lack of growth has been well flagged by the RBA already, with non-mining investment continuing to lag and hurt the east coast economies. As a result, I don’t feel this necessarily changes rate expectations going forward and the RBA is still likely to maintain its wait-and-see approach. Participation was slightly lower than consensus at 64.8%. AUD/USD dropped sharply on the data and printed a low of 0.947.

On the AUD side of the equation I still don’t feel that this disappointing reading changes too much and there is still plenty to look out for with the RBA monetary policy statement due out tomorrow and a raft of China data over the weekend.

Majors sidelined in Asia

USD/JPY hasn’t done much in Asia and as I highlighted yesterday, there isn’t much out of Japan this week. EUR/USD will be the pair to watch today with the much anticipated ECB decision approaching. The actual rate announcement is at 23.45 AEDT followed by the ECB press conference at 0.30 AEDT. ECB President Mario Draghi will then speak a few hours later. EUR/USD was fairly well bid in US trade and is consolidating above 1.35 in Asia. There is plenty of talk around what the ECB is likely to do with most analysts in the camp that they will use today’s meeting as an opportunity to set the market up for a December cut. I remain of the opinion that reacting to the ECB is a better play than pre-empting a decision here.

It is hard to find a value trade from these levels and we are likely to see a choppy reaction to the decision and press conference. Should we see a jump in the euro, selling into strength after the decision could be a good play.


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