Watching The ECB Refinance Operation

Market Brief

The USD traded higher yesterday against most major currencies with DXY approaching 77.45 resistance level reaching 77.33. A break above 77.45 would suggest further rally of the dollar towards 78-79 levels. US equities tended to drop yesterday with S&P 500 and Dow Jones Industrial Average falling 0.2% and 0.6% respectively. Stocks where anticipated to drop lower as U.S. consumer confidence unexpectedly declined in September, with index falling to 53.1 from 54.5 in August a data from Conference Board showed. Other data release showed U.S. house prices increased, which suggests the housing market in the U.S. is stabilizing. The hawkish rhetoric from Fed speakers also helped the USD recover from one-year lows. This morning, Philadelphia Fed President Plosser said there are signs the 'economy is turning the corner' and that 'the Fed will need to act promptly (and) perhaps aggressively when the time comes to exit.' Overnight, Dallas Fed President Fisher said that the 'wind-down process' must begin as '…

EURSUD fell on Tuesday hitting 1.4526 in NY trading session. Euro's weakness began in the European session as stocks declined, and further decline came after the release of U.S. consumer confidence report, while additional pressure came from Russia's central bank as they are willing to maintain its US currency reserve. On the data front, Euro Zone consumer confidence rose yesterday to highest level in one year. The EUR/USD improved in today's Asian session rising above 1.46 levels.

The GBPUSD increased yesterday, recovering from Mondays Lows of 1.5767, supported by a report showing stabilization in the UK retail sector, while mortgage approvals for August were slightly below July's with 52,317 approvals. UK revised and final GDP for Q2 came along expectations with U.K. economy shrinking by 0.6%.

The AUDUSD reached new 2009 highs as retail sales were stronger than expected at 0.9% m/m vs. 0.5% exp. but weaker building approvals, private sector credit data and business credit stymied the move. Markets now will be focused on the RBA next meeting on 6th October.

For FX markets, the ECB refinance operation is being closely watched today effect on the EURCHF. The last major round of intervention by the SNB coincided with the previous 12-month refinancing operation, and traders are watching for a simliar reaction today if EURCHF trades below 1.5100. Above this level we believe the SNB will hold off.

Out side the ECB refinance operation, markets will be on Germany's unemployment report and Euro Zone CPI. From U.S. will be awaiting the release of final Q2 GDP, ADP unemployment change, and Chicago PMI, while Canada will also be releasing it's August industrial production price and GDP for July.

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