London Session Recap

Daily Forex Fundamentals | Written by Forex.com | Sep 30 09 09:58 GMT |

Following an initial move lower EUR/USD has pushed higher during the European session in tune with the better tone of stock markets. A later boost for the EUR came from the results of the ECB's 1yr tender. News that the IMF has cut is estimates for global write downs on loans and investments by 15% on the back of the economic recovery has been seen as an endorsement of the better economic outlook. Another +1.8% m/m rise in Japanese industrial production in August also supports the better outlook as does the overnight release of better than expected UK consumer confidence data. The UK GfK confidence survey registered -16 compared with -25 in August. The improvement is consistent with the relative strength noted in the Sep CBI distributive trade survey released earlier this week. These data support the notion that there is a chance that the UK economy may return to growth during the final quarter. However, insofar as there has simultaneously been a rise in the UK savings rate, there is the danger that the better tone in consumption will falter once fiscal support measures are reigned in. Sterling pushed higher from the open supported by the better UK economic data but also on talk that a EUR3.5 bln UK farming subsidy will impact the market at the 11 am fix. Yesterday's meeting between some MPC members and various city economists has left the market with the impression that it may be too awkward to adjust the BoE's framework to allow for a cut in commercial banks reserves with the BoE in time for the Oct MPC meeting. Cable is holding above the 1.600 level but remains shy of 1.6100. The ECB has announced that it will lend EUR72.2 bln in its second 12 mth auction. This represents far lower demand than had been expected and the results have consequently boosted the EUR vs the USD and many other currencies. The ECB has not embarked on QE this year but instead has resorted to 'exceptional measures' based around extending funds via the money market. Lower than expected demand at today's auction may reflect a more healthy position of European banks. Today's ECB auction coincides with a move lower in EUR/CHF. The gains for the CHF follow the fact that the SNB has not intervened today. Intervention by the SNB had been coincident with the ECB's previous 12 mth auction. EUR/CHF is currently pushing below the 1.5090 level. French President Sarkozy is promising to kick start the French economy with another round of fiscal measures. Present measures are due to fade into next year in contrast to the measures in place in Germany. The plan, however, has sparked concerns as to the impact of the French budget deficit and debt. Market commentary this morning has included warnings that the French government could be in danger of losing its AAA rating in the coming years which would put it in the same boat as the UK. The EUR has been able to shrug off early loses. Germany's labour data caused little impact. The NOK has rallied strongly this morning on the indication from Norges Bank chief that it may be appropriate to raise rates earlier than had been projected in June. Also supporting the NOK has been talk that there will be no oil fund related NOK sales during Oct. The US ADP jobs data are due today. Revised US Q2 GDP data, the Chicago PMI and Canadian Jul GDP are also due. Forex.com http://www.forex.com DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.