Major Overnight Headlines
Euro Area services PMIs mixed, but generally close to being in-line/slightly better
UK IP rises 0.9% MoM in Sept., better than expected, cum. 3-month change for many categories still negative
BRC shop prices fall 0.5% YoY in October; 6-month moving avg. of YoY chg. weakest since at least May 2007
Australia’s trade deficit still on downward trajectory, currently roughly balanced (-284 mln in September)
Nothing inspiring really happened today in FX during the first-half of the London session. Broader price action was, unsurprisingly, indicative of impending event risk and rather muted. Additionally, the speed with which participants covered their EUR shorts versus a number of currencies (JPY, USD and NZD) on the release of the European data – which were not drastically downbeat – suggests that most of the pre-ECB positioning in the EUR has probably been exhausted at this stage. Until ECB event risk becomes a ‘known factor’, any further aggressive downside EUR bets through spot would probably be a lot more opportunistic than before, and rather questionable on a risk-reward basis.
Looking at the picture very broadly (data, AQR, external vs. internal factors), we suspect that Draghi has a bit more wiggle room for the time being than some in FX might give him credit for, if the decision tomorrow ends up being that the ECB stands pat on interest rates for another month (or more). With indicative changes to the wording of the statement and no change on rates, there should be some room to buy EURs back from around the lows – but that room would probably be minimal. If there is no change in policy tomorrow, guidance alone – explicit or otherwise – should weigh on the 1-3-month outlook for the EUR. We tackle this and other issues in our Strategy Alert on the ECB/EUR, due to be published shortly.
Read the full report: FX Daily
BMO