As dramas continue to unfold we can only look to more choppiness ahead. The market has had some majors events to deal with this week and it is by no means over, with the ECB and non farm payrolls tomorrow.
The focus of this update has to be in the antipodes, where despite a Chinese rate cut at the weekend and comments coming from the RBA looking at an exchange value down at 75, the slightly surprising decision at the RBA Monday was not to cut rates.
The Aussie initially strengthened as one would expect against the greenback, but the language of the documents was still disclosing a bias towards easing. With iron ore prices dropping again further weakening could be expected.
However another speech and another lurch upwards. This time deputy governor Lowe expressing the view that whilst easing was still available he was hoping the economy would recover from this point and the exchange level may be ok where it is. Whereupon the Aussie took another flight upwards. A volatile week for this currency.
Of course there is a limit to the upside as easing may be the only thing to stop it going higher! Something of an irony.
Oil has been responsible for some changing sentiment this week. Thanks in large part to the political effect the Isreali PM had in Washington earlier in the week. However oil inventories were up again this week in the US from 4 million to 10.3 million so it still looks like a range for black gold for a while yet.
The optimism however spread to the CAD, added to which The BOC kept rates the same and in an incredibly short statement seemed upbeat in the outlook. The USDCAD saw a good sized pullback as a result as the Canadian currency stengthened.
Forex Fundamentals Ahead
As for the Euro, at eleven year lows against the USD, and with Euro stocks heading up, it looks like the market is expecting further weakness ahead for the Euro. Despite some better data of late Germany factory orders were bleak and in this key country of the EZ, manufacturing is the major part of GDP and critical going forward.
However the real focus will be on Draghi this afternoon and hopefully the market will get some greatly needed clarity.
The other major news the market is waiting for is the US non farm numbers. With a close eye on wages, the FOMC have made it clear just how important these numbers are in the context of their decision and the debate continues not if but when they will hike the rates.
There are voices on both sides within the FOMC and without, so as the weight of the jobs data increases so will the reactions. This one promises market movement .
At the weekend we will have the opportunity to put all the various results into focus and hopefully context and get some insights into what is proving to be a very difficult market to trade.
Judith Waker
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