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Risk On as ECB announces Bond Buying Plan

‘Risk On’ as ECB announces Bond Buying Plan

 

U.S. Dollar Trading (USD) stocks around the world registered massive gains overnight as the ECB embarked on its on QE style intervention in the bond market. US S&P 500 traded at fresh 4 year highs and we saw very strong ADP Employment numbers at 201k vs. 140k expected. This indicates that tonight’s more official US NonFarm Payrolls might be stronger than forecast. Looking ahead, August US NonFarm Payrolls forecast at 125k vs. 163k previously. The August Unemployment Rate is forecast at 8.3% vs. 8.3% previously.

The Euro (EUR) Draghi didn’t disappoint overnight announcing a large broad scale unlimited bond buying program to target the 1-3 year maturities. Dubbed the Outright Monetary Transactions (OMTs) the plan is stop traders betting against the  Eurozone. Some questions remain about the legalities of the OMT and some opposition remains from Germany who believe the plan is tantamount to financing government deficits. Italian and Spanish yields did drop however and this is the main intent of the Plan. EUR/USD is strong but has already rallied in anticipation of the plan and is finding resistance near 1.2650. The Sterling (GBP) was higher but only marginally gaining to 1.5950 on the major. More substantial gains were seen on the GBP/JPY which moved above Y125 in strong trade. Looking ahead, July German Trade Balance at 15.5bn vs. 16.2bn previously. Also released German Industrial Output forecast at 0 vs. -0.9% m/m. August UK PPI Input forecast at 1.7% vs. 1.3% m/m. 

The Japanese Yen (JPY) the risk on trading overnight caused the safe haven Yen to be sold across the board especially against the USD/JPY and EUR/JPY. AUD/JPY surged from Y80 to Y81.30 as the market was caught short from selling in recent days. The US jobs today is a major mover of the USD/JPY and traders are optimistic of a good number after the surprise ADP report yesterday. Australian Dollar (AUD) the market was caught short on the AUD yesterday and we saw a large move higher in the US session as stock markets surged. Resistance was found at 1.0300 and we have pulled back slightly so far in Asia but remaining strong. Update July Trade Balance at -556m vs -300m forecast at July Exports fell -3%.

Oil & Gold (XAU) Gold broke above $1700 before the ECB announced their Bond buying program. We had a buy the rumor sell the fact situation yesterday as we fell from $1715 back $1695. OIL/USD was volatile testing $97 in Europe before reversing aggressively to below $95 as profit takers took control.

Pairs to watch

EUR/USD Can the gains be sustained?

AUD/USD Sell the rally for a downtrend?

TECHNICAL COMMENTARY

Currency

Sup 2

Sup 1

Spot

Res 1

Res 2

EUR/USD

1.2500

1.2557

1.2635

1.2652

1.2743

USD/JPY

77.90

78.54

78.90

79.30

79.53

GBP/USD

1.5778

1.5826

1.5930

1.5940

1.5997

AUD/USD

1.0165

1.0245

1.0285

1.0300

1.0355

XAU/USD

1660.00

1685

1695

1700

1715

OIL/USD

93.00

 

94.50

94.80

95.00

97.00

 




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