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It’s just a beginning…


It has been an incredibly intensive day. Two major calendar position did not disappoint and supported the greenback but there was so much more going on. From oil, down another 4%, through ECB related rumours, through data from Australia, surging CHF and sinking equities. And to think it was just a beginning.

The US dollar was looking for some boost following a shaky start of the week and got it from both ADP and Yellen. The ADP, seen as the best gauge ahead of the payrolls (Friday) that is available, showed a healthy gain in employment. Yellen was surprisingly hawkish. While she admitted that a strong dollar hurts exports and has some effects on core inflation, she called those effects temporary, underscoring a strong domestic demand, labour market gains and smaller risks from China. She made it clear the move in Dec was a done deal and did not try to dump expectations for hikes in 2016.

While the dollar reacted positively at first with the EURUSD scoring autumn lows and the dollar index moving to 12y highs, it quickly reversed on what looked to be a profit taking but also some cautiousness ahead of the ECB meeting tomorrow. The news that the ECB projections will be similar to those from September helped the euro although in our view this might mean that they take into account aggressive policy action. A concrete response seems to be warranted by a low core inflation in the EMU. The US Beige Book was pretty much neutral and had no major impact on the dollar. A pullback on the greenback also saw a retracement on equities with the outside bar on the D1 S&P500 looking very bearish at the moment.

Oil was a hot potato today, gaining very briefly on rumours from Iran that the OPEC could cut output but these rumours were quickly put into doubt as the Saudis oppose any cut and the US output and inventory data was unfavourable.

Earlier in a day we had a decent GDP from Australia: the headline showed +0.9% q/q, above the consensus of +0.8% even though the growth structure did not look good. AUD remains resilient in a face of iron ore prices hitting fresh 8 year lows pretty much EACH DAY this week.

All these moves may be dwarfed by what will take place tomorrow and on Friday. The ECB and the payrolls will be the true test for the bearish trend on the EURUSD.


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