- USD softer, EUR stable, CHF hit by SNB re-peg speculation.
More positive signals out of the latest troika/Greece phone conference, an absence of any bad-news scare stories and some sense of optimism that the FOMC would deliver enough following the conclusion of the FOMC meeting today to add a layer of support under risk markets, combined to put a floor under EURUSD Tuesday. USD was generally softer, most pronounced against NOK (ahead of the Norges Bank decision Tuesday); SEK (despite dovish Riskbank minutes – latter seen to be priced in) and AUD (after RBA minutes and where the market picked up on the comment the RBA did not regard the current level of money market rates as accurately reflecting policy easing expectations). CHF was the biggest loser, USDCHF +0.8%, on rumour/speculation that the SNB was poised to lift the floor under the EURCHF peg to 1.25.
- FOMC uncertainty runs highs; equities should determine USD response
Uncertainty as to exactly what the FOMC statement will deliver following the two-day Fed meeting today runs high. While ‘Operation Twist’ in the order of $300-400bn of maturity transformations under an ‘Active Twist’ policy looks to be discounted, there is no strong sense of how bond, equity and hence FX markets may react to this. Markets took a while to digest last month’s statement and may do likewise today. As or perhaps more important will be what accompanies any specific policy action, in particular how wide the door may be left open for additional actions down the line. Our US economists do expect a strong hint of preparedness to do more. If so this could carry the day. It’s a fine call whether the USD goes up or down on the Fed; it will probably be a case of if equities get a lift, USD will be softer. One concern here (see Chart) is that confirmation of a still flatter US yield curve could pressure financial stocks and with that the broader equity market. So, we see some risk of ‘Twist’ ‘having unintended consequences.
- BoE Minutes
Ahead of the FOMC outcome, there is keen interest in the Bank of England’s September meeting minutes. BoE deputy governor Charlie bean gave a broad hint last week that more QE was now under considerations, and the minutes will reveal just how active the discussion was two weeks ago. We expect more QE but perhaps not until November. There may be enough in the minutes to have the market shifting the implied probability up from 40% (latest Reuters poll) to above 50% – in which case we would expect GBP to dip. GBPJPY may among the safest shorts just at present.
- Norges Bank policy decision; Canada CPI, US existing home sales main economic events
In contrast to a dovish hue to the Riskbank minutes on Tuesday, we do not expect the same when the Norges Bank delivers its latest rates verdict at 12:00gmt. Even if policy is seen to be on hold amid high levels of global uncertainty//downside growth risk, that should do no harm/could help our long NOKSEK portfolio position. Canada August CPI will be of interest and where if core CPI stays at 1.6% as expected it will support the view that if BOC is going to do anything in the months ahead, it will be to cut rates. USDCAD looks stuck in a 0.99-1.00 range for now.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/09/FXASDaily09212011.pdf
BNP Paribas
Corporate & Investment Banking