Nowotny Takes The Euro For A Spin

The ECB's Nowotny said there won't be a rate cut from the ECB, sending the euro sharply higher and setting off a round of volatility. The US dollar was the top performer on the day while the Australian dollar lagged. Up later is data on home sales from Australia and industrial production from Japan.  

Nowotny, in an MNI exclusive, said there is no realistic prospect of a cut in the main refi rate or the deposit rate. The euro quickly rallied to 1.3813 from 1.3765 on the comment – just shy of a two-year high. The strength didn't last and the euro reversed all the way to 1.3737.

Part of the reason for the drop was that Nowotny also strongly hinted at an LTRO early next year but it also spoke to the limited appetite to buy the euro at these levels, especially ahead of the Fed decision tomorrow.

Other economic news in US trading was mixed. Overall retail sales for September slightly trailed estimates but after stripping out volatile items, sales were slightly stronger than expected. The picture might dim in October if the consumer confidence declines lead to less spending. Confidence fell to the lowest since April at 71.2 compared to 75.0 expected. Housing data pushed aside some of the worries from yesterday's pending home sales report as the Case-Shiller home price index rose 12.8% y/y vs 12.5% expected.

The weakness in the Australian dollar and pound were indicative of traders paring back recent bets against the dollar. Those have been two of the best performing trades against USD this month and jawboning from Stevens and UK mortgage data weren't great reasons for such steep declines.

The market might quiet ahead of the Fed but at 2350 GMT Japan releases the preliminary September industrial production report. It's expected to show a 5.5% y/y gain. Ten minutes later the focus shifts to Australia for HIA new home sales.