Intraday Market Thoughts

ECB Drama, US Elections in Focus

by Adam Button
Nov 4, 2014 23:15

A surprising report about discord at the ECB boosted the euro Tuesday. The general theme in markets was a retracing some of the USD strength in JPY weakness while oil continued to plummet. The New Zealand jobs report was strong early in Asia-Pacific trading; US midterm elections are up next.  Both new USDCAD Premium traxes were filled and in the money, alongside alongside the 4 AUDUSD and USDCHF Premium  trades. All details of the Premium trades are in the Premium Insights.

A report about discord with Draghi's leadership at the ECB struck almost out of nowhere on Tuesday. Multiple sources in a Reuters story said other members of the governing council are fed up with unilateral statements from Draghi and will confront him at this week's ECB meeting.

The euro rallied on the report. Draghi is seen as a dovish leader and the main quibbles outlined were that he made dovish promises that weren't vetted by the rest of the ECB. Any change would also likely swing power back toward the Bundesbank and that would severely undermine the case for QE.

Overall, however, it's a tough trade because turmoil at the ECB would hurt growth in the Eurozone. If a shock headline hits that Draghi is stepping down it might be wise to avoid euro trading and look to short Eurozone stocks or periphery bonds instead.

An early economic data highlight in Asia-Pac trading was the New Zealand jobs report and it showed unemployment at 5.4% compared to 5.5% expected and immediately boosted the kiwi to 0.7840 from0.7765. New Zealand jobs data is only released every three months so the report can have an outsized impact. Earlier in the day the kiwi fell 20 pips briefly after Fonterra's milk auction fell 0.3%.

The more intriguing story will be the US midterm election. The entire House is up for election but Republicans are expected to easily maintain a majority. The market will be watching the Senate to see if six seats can change hands and give Republicans a majority.

The kneejerk will be to buy US assets if the Republicans win but that trade may be short-lived because policymaking will essentially remain deadlocked.

Alternatively, one trading chip the President may use if the Republicans win is approving the Keystone XL pipeline so the Canadian dollar could end up being the big winner/loser.

Act Exp Prev GMT
Eurozone PPI (SEP) (m/m)
0.2% 0.0% -0.2% Nov 04 10:00
Eurozone PPI (SEP) (y/y)
-1.4% -1.5% -1.4% Nov 04 10:00
Employment Change (Q3)
0.8% 0.6% 0.4% Nov 04 21:45
Unemployment Rate (Q3)
5.4% 5.4% 5.6% Nov 04 21:45

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