Intraday Market Thoughts

Were Markets Focused on the Wrong Central Bank?

by Adam Button
Oct 2, 2014 23:35

While the forex world was hanging on every word from Draghi on Thursday another central bank story hit that could have even larger implications. On the day the kiwi and yen were top performers while the pound lagged. The Asia-Pacific calendar is light to end the week as anticipation about non-farm payrolls builds. Both our Premium USDCAD and AUDUSD remain in progress as do our shorts in NZDJPY.

Draghi and the ECB were coy on Thursday. The market was expecting details on bond purchases but officials remained vague. It's increasingly clear that Draghi & Co are relying on the Asset Quality Review and TLTRO rather than new measures.

Euro trading was choppy. Some traders were looking for a hint at sovereign QE and that might have contributed to some euro strength but the broader trend was USD weakness and the market hardly needed a reason to squeeze euro shorts.

As Draghi was speaking, a central bank story with greater implications may have hit. The WSJ reported the BOJ may loosen its timeframe for hitting its 2% inflation target. At this point, traders and BOJ policymakers themselves all knew the target wouldn't be hit but lengthening the timeline sends the signal that the BOJ won't do more any time soon.

At the same time, The BOJ's Amari warned yesterday that excessive yen moves are undesirable in what has to be the first attempt to stall yen weakness in more than a decade. USD/JPY formed a bearish engulfing reversal after a fresh high on Wed and continued lower on Thursday. It's now threatening a bearish engulfing weekly candle – that will be something to watch on Friday.

Otherwise, the build up to NFP is the main event. China remains on holiday. Events to watch are the Chinese non-manufacturing PMI, a speech from Bullard at 0000 GMT.

Act Exp Prev GMT
54.4 Oct 03 1:00
Eurozone Markit PMI Composite (SEP)
52.3 52.5 Oct 03 8:00
Eurozone Markit Services PMI (SEP)
52.8 53.1 Oct 03 8:00

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