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  • richard evans

Will ECB move Euro?

Good morning

The US dollar made gains helped by JOLTS jobs data that shows a record number of job openings, suggesting the recent disappointing nonfarms may not be telling the full story. Also helping US dollar was comments by Feds Kaplan who said he would support tapering in October assuming there was no significant change in outlook, while Feds Williams also said tapering this year may be appropriate. Finally, a general drop in risk sentiment also seemed to give the dollar some support.

BoC kept rates policy unchanged at yesterdays meeting and kept forward guidance unchanged which means plans to taper asset purchases further in October are still on the agenda. Some interest in downside USDCAD has been noted, USDCAD now trades 1.2720. It wasn’t that long ago we were talking about a break below 1.20 for USDCAD so I guess downside interest is not surprising and through options does look quite attractive.

We await the ECB rate meeting later today where we look for any comment on asset purchases under PEPP. A recent survey showed expectations that ECB may slow asset purchases in Q4. Is this the time for such an announcement? Perhaps a reduction from EUR80b to EUR70b a month is possible. I very much doubt ECB will want to push EUR higher, so even if they announce any slowing of purchases they will likely make it very clear that support will continue to be provided for a long time to come. A quick mention of delta variant risks and supply chain issues could also temper EUR demand. EURUSD currently 1.1825. Tempted by the overnight 1.1800 1.1850 strangle which costs just over 25 usd pips ($2,500 per EUR1m notional) even though its asking quite a lot.

UKs tax changes have been agreed by parliament. GBPUSD has moved lower, GBPUSD did reach 1.3750 or so thanks to a stronger US dollar but is now at 1.3790, GBP is performing marginally better against EUR, EURGBP at 0.8580 (GBPEUR 1.1655). UK data out early tomorrow morning includes GDP although I think unlikely to spook the markets unless significantly away from expectations.

Finally, i should mention the move in crypto currencies which saw Bitcoin fall from $53,000 to $43,000, stabilising around $46,000, not helped by, in my opinion, a rather odd idea that El Salvador has announced it as legal tender. The government there has even given citizens $30 worth of bitcoin to get them started. It’s an experiment. I am not an expert in El Salvador, perhaps despite the absurd volatility in Bitcoin, it may still be less risk than their own currency.

- 09.35 RBAs Debelle speaks

- 12.45 ECB rate announcement

- 13.30 US initial jobless claims

- 17.00 BoCs Macklem speaks

- 18.00 Feds Bowman speaks

- 19.00 Feds Williams speaks

- 07.00 UK GDP, industrial production

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