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Market Brief

The US dollar is back in demand before the US labor data today. The consensus for September change in NFPs is 215K vs. 142K printed a month ago; the unemployment rate is expected to stabilize at 6.1%. The average earnings will also be closely monitored as the FOMC Chair Yellen aims for faster growing wages for tighter slack in the labor market. The US yield curve has flattened over the past week, the 10-year yields are still below 2.45% despite the broad USD strength across G10 and EM. Today’s data determine whether the USD has topped or it has room for further gains.

For USD/CAD, the US labor data and the Canada’s trade balance will be determinant. With analysts betting for declining trade surplus in Canada (especially due to soft energy prices) and USD/CAD technicals still pointing the upside, the year-high 1.1279 is at the radar. On the downside, option bids at 1.1000/50 should give support before the weekly closing bell.

The candle patterns analysis signals the formation of bullish engulfing pattern (with 5/9 conviction level) on AUD/USD, AUD/CHF and AUD/CAD, bearish engulfing on EUR/AUD (4/9 conviction). Short-term bullish reversal is expected in the AUD-complex given the oversold conditions. While the price action on AUD/USD and AUD/CAD is contingent on North American data, the technicals will play greater role on AUD/CHF and EUR/AUD direction. A week close above 0.8406 for the AUD/CHF, and below 1.4340 for the EUR/AUD (MACD pivots) should favor deeper correction in favor of the Aussie on both pairs.

EUR/USD traded ranged as the ECB maintained the status quo in October meeting. The President Draghi delivered details on the ABS and covered bonds purchases program: the ECB will buy covered bonds starting from mid-October and the ABS by year-end. The private debt purchasing program will last at least two years. The ECB will be inclusive as possible on ABS purchases; assets from countries below BBB- rating (as Greece, Cyprus) will require caveats as compensation for risk. The TLTROs combined to ABS and covered bond purchases all together will have significant impact on ECB’s balance sheet and is roughly estimated worth 1 trillion euros. The goal is to stir the ECB balance sheet to early 2012 levels (approximately 3 trillion euros vs. 2 trillion actually). “Insufficient progress in structural reforms in Euro area countries constitutes a key downward risk to economic outlook” reiterates President Draghi.

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