Market Drivers Aug 26, 2015

Asian bourses rally driving euro lower
Oil pops helping drive USDCAD lower
Nikkei 3.20% Europe -1.32%
Oil $39.5/bbl
Gold $1136/oz

Europe and Asia:
AUD Construction Work Done 1.6% vs. -1.5%
GBP UK BBA 46K vs. 46K

North America:
USD Durable Goods 08:30

It’s been a much calmer night of trade in the currency market but equity flows continued to dominate the direction of FX as the rally in Asian bourses helped to push EUR/USD towards the 1.1450 level unwinding the risk aversion trade.

After yesterday’s disappointing NY session close which saw all of the gains erased by end of day, traders in Asia were jittery and both EUR/USD and USD/JPY saw some serious volatility jumping 50 points up and down in a matter of minutes as traders prepared for the open of trade in Shanghai and Tokyo. But after an initial swoon, Asian stocks stabilized and that helped to reverse most of the risk aversion trades in FX.

By mid-morning Europe the unwind in risk aversion accelerated and EUR/USD dropped to session lows of 1.1450 as traders awaited the North American open. With no major economic events on the calendar the currency markets will continue to be driven by equity flows and the key question ahead if whether US stocks can finally stabilize after two days of massive volatility that has shaken investor sentiment to the core.

Traders in Asia appeared to be relieved by yesterday’s easing moves from PBOC with most investors expecting the Chinese central bank to cut rates further before the year end in order to stimulate the Chinese economy.

The only report of note in the US session is the Durable Goods report due at 1230 GMT. The market anticipates a lower read of 0.3% from 0.6% a month ago, but unless the print is negative it’s unlikely to have anything but a momentary reaction to trade. The focus will be on stocks and currency traders will be keen to see if bargain hunters will finally appear. A strong rebound in equities will likely send EUR/USD back below 1.1400 and USD/JPY above 120.00 as they try to recapture the key breakout/breakdown levels from which which they exploded at the start of this week.

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