Richard Wiltshire, ETX Capital’s chief FX dealer commenting on Wednesday’s price-action: “Equities have started the day on a negative tack after US politicians remain at loggerheads on a budget and large areas of the government close down. Despite Tuesday’s strength across global equities, Wednesday sees a reversal as the risk tone erodes, leaving a detrimental effect on stock markets. Expectations are once again resting on the shoulders of Federal Reserve Chairman Ben Bernanke, when he speaks later on today, with markets hopeful he may assuage recent worries and remain pro-QE, at least until the fiscal situation is resolved. Meanwhile, on the foreign exchanges, after the initial knee jerk “sell USD” reaction yesterday morning, we have become more reflective and are playing ranges yet again, albeit from a sell USD on any rallies perspective. EURUSD needed some spark to break it from the seemingly endless days of range trading we had witnessed in the last few weeks and yesterday morning, the bulls got all excited as we breached key resistance up around 1.3570/75 area. However the bullish joy and optimism was short lived, as, once the stops were all cleared, the European PMI’s came out and took some wind out of the sails of the rally and allied to some, at first glance, weaker than expected UK data saw the USD “sell fest” stall. So, the market sits and waits with a palpable air of uncertainty and event risk become more of an immediate focus as we await the ECB meeting today (strategists think that the chances of a 1.5y or 2y LTRO have increased of late) with ECB head Mario Draghi’s presser likely to have a more pronounced impact. Also, the US ADP employment data today, takes on far greater significance given the doubts with regard to the release (or not) of the Non Farm Payrolls which should have come out this coming Friday. So, while intraday volatility around US data, (which doesn’t get delayed because of the shutdown) like today’s ADP, will be exaggerated, it’s unlikely they will having a lasting impact given the environment in which we find ourselves. I should probably also throw the Italian vote situation in upper and lower houses into the mix at this stage, but the conflicting reports of will they/won’t they, (back Letta’s Government) and Mr Berlusconi’s party seemingly changing their minds randomly would only serve to confuse matters and whereas a positive outcome and the Government holding, should be positive for the Euro, I personally am not so sure that the market is paying too much attention, and is far more focused on the ECB and US situations. The price action suggest the market is getting increasingly nervous with the US situation and we have the rather unusual scenario where, given any crisis the USD is usually the first port of call for safe haven bets, this confounds that play and so we see the market in a bit of a dilemma, with Yen and Swissy threatening (but not convincingly) to don their “safe haven” hats again, but with the SNB threat always in the background (the wounds of Sept 2011 are still there) and no further news out of Japan until the BoJ starts its 2 day policy meeting these plays are muted to say the least. All in all, a painfully slow morning as we await the “main events” - over to you Mr Draghi!” ________________________________________ Richard Wiltshire Chief Dealer Foreign Exchange
Posted on: Wed, 02 Oct 2013 10:51:26 +0000