Sunset Market Commentary – Action Forex



A75 bps rate hike is not the new norm (according to ECB’s Lagarde yesterday at the ECB press conference). Also the Fed pledged to set interest rates in line with incoming economic data. That said, after the assessments made by ECB Chair Lagarde and Fed Chair Powell yesterday, markets currently see anything different from a 75 bps rate hike by both the ECB and the Fed at their next meetings as highly unlikely. A further reappraisal is very much possible, especially if inflation were the stay at elevated levels for longer. However, after recent sharp repositioning and 75 bps hikes ‘discounted,’ markets understandably were ripe for a pause. Technical considerations and a calendar deprived of any key economic data facilitated a wait-and-see attitude. The US 2-y yield for new is ‘blocked’ at strong resistance near 3.50%. That said, it still holds near levels not seen since 2007. The US 10-y (3.28%) yield also nears key resistance in the 3.36/3.50% area. Similar narrative on the EMU interest rate markets. The EMU 10y swap and German 10-y yield almost touched the closing peak levels as set mid-June. The EMU 2-y yield intra-day backtracked after touching a new cycle top. In this (admittedly labile) consolation US yields currently are trading almost unchanged across the curve. German yields initially eased 5bps+ across curve (except for the 30-y), but already reversed intraday losses. The pause in the bond sell-off also provides relief for other markets. US and European, equities are rebounding (EuroStoxx 50 +2.0%, Nasdaq +1.1%). European gas prices continue a gradual but protracted correction of the historic record levels reached two weeks ago as EMU energy ministers are contemplating  new mechanisms to cap unwarranted high pricing, or at least try to reduce the negative impact of these prices on the broader economy. The reference Dutch future contract eases to € 212 p/MWH (peak was (€349). On the other hand, oil rebound after recent sharp, with Brent rebounding north of $ 91 p/b.

On FX markets, recent aggressive USD bid also eased on the  broader risk-relief. The DXY index currently trades near 109 compared to 109.50 this morning, but well of the intraday lows. USD/JPY also further leaves from recent multi year highs 142.30). In recent USD ascent, the euro often outperformed most other G10 currencies (NZD, AUD, CHF, SEK, NOK….). This pattern was completely revered today. The euro is losing against most other ‘smaller’ G10 currencies, the Canadian dollar being the exception to the rule (cf infra). EUR/USD, this morning briefly filled offers north of 1.01, but a sustained upside failed despite the broader USD correction, a better risk sentiment, the ECB catching up the broader tightening move….EUR/USD currently only maintains a ‘meagre’ daily gain (1.0040 vs 0.9997 at yesterday’s close). Sterling also gained a few ticks against the single currency. However, EUR/GBP still holding with reach of the 0.87/0.8721 resistance area, only suggests fragile underlying sentiment against the UK currency. The Bank of England delayed its September meeting by one week to Sept 22 due to the national mourning for Queen Elisabeth 2.

News Headlines

The Canadian Labour Force Survey showed a 39 700 job loss in August. It’s the third month running of declining employment. Details pointed to a decrease of 77 200 full time jobs and an increase of 37 500 part time jobs. Diving in the numbers, educational services (- 50 000), construction (-28 000) and public sector (-28 000) were the most hard hit sectors. The unemployment rate rose for the first time in seven months, from 4.9% to 5.4%. An increase of the participation rate (64.8% from 64.7%) softens the blow. Hourly wage growth accelerated from 5.4% Y/Y to 5.6% Y/Y. The loonie had a strong run against the dollar going into Canadian payrolls thanks to the friendly risk environment. USD/CAD drifted temporary below 1.30 for the first time since end August before the labour market report halted the Canadian currency’s rally.


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