Aussie Data Weighs on the AUD with all Eyes now on Draghi and the EUR

Earlier in the Day:

Following all of the upbeat sentiment of Wednesday, shared by RBA Governor Lowe, macroeconomic data this morning out of Australia was a disappointment, with Australia’s July trade surplus narrowing, while July retail sales also stagnated, both sets of numbers falling well short of market expectations.

The stats took the AUD down from $0.80151 to $0.7999, with the AUD sitting down 0.25% at $0.798 at the time of the report, weakness coming despite the U.S Dollar on the back foot in the early part of the day.

While the currency markets are still holding on to the possibility of an escalation in the ongoing North Korean crisis, Saturday’s anticipated ICBM test beginning to loom large, the Dollar down 0.12% against the Yen at ¥109.09, it was risk on for the equity markets through the early part of the Asian session this morning, with most of the Asian indexes in positive territory at the time of the report. The gains were not from a shift in market risk appetite however, but in response to Wednesday’s U.S equity market response to a deal between the U.S administration and the Democrats to attach relief money for Texas to a 3-month extension on both government funding and the debt limit, with the new deadline now set for 15^th December.

The Day Ahead:

There is certainly some uncertainty being reflected in the markets through the early part of the day, with the EUR having hit an intraday high $1.1935 before easing back to $1.19259 at the time of the report, though momentum looks to be on the heels of the EUR.

It’s ECB day and, while the markets will be expecting the ECB to hold steady on monetary policy today, this afternoon’s press conference may well have a higher viewer rating than normal, with the markets looking for clues on when the ECB will begin to outline its asset purchasing program plans for next year, with the current program due to expire at the end of the year.

The lack of inflationary pressure has likely left the ECB with little choice but to put together a plan for next year, though the details will not be available until the final ECB meeting of the year, according to unnamed sources. Draghi held back from talking down the EUR in his Jackson Hole speech, despite concerns of a stronger EUR on the Eurozone economy, which suggests that something dovish may be in the wings.

While inflation may be on the softer side however, the Eurozone economy has found its feet and moved up a gear, raising the question of what the 2018 program will look like, not only from a size perspective, but also duration, with the markets having expected the ECB to begin tapering the existing program as early as this month.

As things stand, it does seem to be a tall order for the ECB President to take a particularly dovish tone this afternoon, with even the softer private sector PMI numbers for August not soft enough to begin sounding the alarm bells. It also seems to be particularly bearish to suggest that any extension of the asset purchasing program through to next year will be of a similar size to current levels.

The ECB wants to avoid a taper tantrum, but it can also ill afford to give the markets a surprise at the end of the year, so we may begin to hear certain details today or at least be advised of when to begin to expect more on the asset purchasing program. Draghi will likely have to dodge a barrage of questions through today’s Q&A, but it won’t be the first time and certainly not the last.

Ahead of the ECB monetary policy decision and press conference, there are some stats that the markets and even the ECB will have to consider this morning, with the Eurozone’s 3^rd estimate GDP numbers for the 2^nd quarter scheduled for release. Stats since the 2^nd estimate GPD numbers, 2^nd quarter stats out of the Eurozone have been relatively positive, with the Eurozone’s June trade surplus widening, which suggests that there will be no downward revisions that could temper any of the hawks out in support of the EUR.

This morning’s July industrial production figures out of Germany may have disappointed, providing some weakness to the EUR following the release, but it will ultimately hinge on Draghi and the EUR will certainly not be able evade volatility through the press conference, as the markets respond to Draghi’s every word.