- Mildly risk-positive Friday, but NZD, CAD and AUD lead the way, not EUR
The dip in EURUSD in Friday’s Asia session, from 1.39+ on Thursday to sub-1.38 triggered our Long EURUSD trade recommendation, the pair subsequently oscillating quite narrowly around that level though the remainder of Friday. Markets were braced for a potential sovereign rating downgrade of Italy from Moody’s which had not arrived as of NY close. After the close, Moody’s indicated it would take another month to complete its review. One point of euro weakness during the session was after a report suggesting that the indicative take-up under the Greek PSI plan was running at about 75% versus the 90% target but which we in no way regard as sacrosanct for a deal to proceed. Indeed we had comment from one EU official suggesting the EFSF would make up any shortfall in the overall second Greek support package if the PSI contribution falls short of target. Reports suggested US Treasury Secretary Geithner had urged his EU counterparts to ‘scale up’ the EFSF to give it greater fire power to tackle Eurozone debt problems, but was there no indication that EcoFin was about to endorse his proposals. Hardly surprisingly in so far as the expanded remit of the existing (EUR440bn) EFSF has yet to be ratified. On a day that saw equities modestly firmer (with US indices chalking up gains every day last week and the VIX 10 handles off its early-week highs) NZD, CAD and AUD were the best G10 performers. CHF and EUR fared worse. US data had scant impact. The Michigan CSI showed a small gain as expected (not the bigger one rumoured pre-release) and while the monthly (July) US TICS day showed another very poor month for net portfolio inflows (see updated chart below) USD was unmoved on the release.
- Barring EcoFin surprises, FOMC may keep markets in ‘wait and see’ mode early week
Writing ahead of the weekend, there will plenty to digest at the Asia re-open Monday, with EcoFin in session through Saturday and elections in Berlin on Sunday. Barring shocks in either direction from the weekend and given that the FOMC (Tuesday and Wednesday) now looms large, there may be an element of ‘wait and see’ in the early part of the week. ‘Flash’ Eurozone PMIs (Thursday) that could have major bearing on the ECB’s disposition towards reversing monetary policy course as early as October, will also be very important. Eurozone specific events of note for Monday include the attendance by Bundesbank President Weidman and the EFSF’s CEO Reigling at a hearing on the EFSF, and the post-Berlin election press conference from Mrs Merkel. Bank of Finland Governor Liikanen is also due to speak.
- Comfortable with positions; RBA minutes and Norges Bank highly relevant for two of them
We are comfortable with our three current live cash market trade recommendations; long EURUSD, long NOKSEK and long AUDNZD. The latter is at some risk (as much positive as negative) from the minutes of the RBA’s September meeting on Tuesday, and the former from the Norges Bank policy decision and comment on Wednesday.
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BNP Paribas
Corporate & Investment Banking