Major Overnight Headlines
Euro Area October (final) manufacturing PMIs mixed; pan-Euro Area PMI at 51.3 in-line
UK construction PMI rises to highest level since Sept. 2007 in October, nearly 60.0
German SPD/CDU-CSU grand coalition talks, based on recent headlines, appear to be at an impasse for now
Australian existing house prices continued their upward trajectory in Q3; YoY growth rate at nearly 8.0%
All things considered, we still expect the EUR to remain on the ‘soft’ side in the run-up to this Thursday’s ECB press conference. Technically and fundamentally, EUR/AUD, EUR/NZD and possibly EUR/NOK appear ripe to test some new downside before then, relative to their October ranges. EUR/USD, on the other hand, is probably a better sell on rallies above 1.3520 for now, rather than an opportunity for opening new, aggressive shorts below 1.3500 the figure.
In terms of our own thinking, we are disposed to look for modest EUR downside in the run-up to Thursday not as an opportunity to set up for more aggressive EUR weakness following the ECB, but rather as an opportunity to buy some EUR back from attractive levels if the events of Thursday don’t actually end up being quite so dovish as some might expect.
We’re not taking the position that an additional package of measures from the ECB on multiple fronts, including lower key rates, won’t be needed. Indeed, our short-term EUR view is based on the notion that we might very well this week receive a new assessment of growth and inflation risks, and hints of new impending measures. We are however taking the position that such measures might be more practical and effective once the Asset Quality Review (AQR) is at a more advanced stage.
Cyclically and structurally, internally and externally, the EUR has been firm for reasons that would appear rather difficult for the ECB to try and fight aggressively at present. The international monetary and FX space is also currently a highly tense, highly complex arena. Securing victory therefore requires the ECB to be deft, nimble and timely.
Read the full report: FX Daily
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