Major Overnight Headlines
European Oct. manufacturing PMIs mixed; UK, Denmark, and Sweden miss, Norway beats, Greece still sub-50
Norwegian house prices fall 0.8% MoM in October, YoY growth rate edges lower
Chinese official manufacturing PMI rises very slightly in October to 51.4
The USD positioning clear-out based on factors we have been citing all week has probably caused pain for some. We would therefore expect these new, higher ranges in the USD to stick around into early next week. The USD should also generally be supported by the evidence given in USD/ZAR, which is comfortably back above the 10.00 mark. Developed and developing market equity and bond funds have seen their losses accelerate modestly this week, with those declines assisted in part by the FOMC.
At the same time, the EUR should remain on the ‘feeble’ side in the run-up to the ECB press conference towards the end of next week, but the EUR weakness now poses a complex problem for the central bank. The difficulty facing the ECB is to get the EUR devaluation to persist or extend beyond next week’s rate decision. Additional liquidity support is a EUR negative, but to the extent that it triggers more capital inflows or non-existent re-pricing of credit spreads, it can also be a EUR positive too. Additionally, some participants may still be nestled deep within Euro Area credit markets on expectations that the AQR will be rather smooth and painless. Aggressive ECB action now might force investors to remain of that view, but we’d be on the other side of that trade on a 3-6-month outlook.
Read the full report: FX Daily
BMO