Currencies Seesaw on Equity Flows

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Market Drivers September 29, 2015

Euro whipped around in EURGBP flows
Commdollars find a bottom
Nikkei -4.05% Europe 0.39%
Oil $44/bbl
Gold $1126/oz

Europe and Asia:
EUR Import Prices -1.5% vs. -1.4%
GBP Mortgage Approvals 71K vs. 70K
EUR EZ Economic Confidence 105.6 vs. 104.1

North America:

USD Consumer Confidence 10:00

It’s been a whippy session in Asian and European trade characterized by risk aversion and portfolio flows as euro first soared to a high of 1.1282 on sharp drop in Nikkei only to drop quickly as European stocks rallied.

The Nikkei dropped by -4.05% in a follow through from US session dragging USD/JPY all the way to 119.25 as risk aversion flows dominated Asian trade. The Nikkei has now lost all of its gains for 2015 as investors continue to worry about the slowdown in China and its knock on effects throughout the region.

Commodity dollars also came under enormous pressure in Asian trade as Aussie broke below 6950 support while kiwi dropped below 6300. The meltdown in Glencore yesterday continued to exert very negative pressure on AUD/USD as investors feared that the mining giant could face financing problems.

In Europe however, most of these flows reversed as equities found a bid and risk appetite returned albeit cautiously. Aussie rebounded above 6975 and kiwi rose towards the 6350 level while euro tumbled back to 1.1225. Euro was also whipped around by EUR/GBP flows as currency traders anticipated the 3B+ payment from EU to UK farmers due at the end of the month. The pair has been well bid ahead of the event for the past few days but after breaching the 7400 figure for the third time over the past month it found sellers once again and saw some quick profit taking in mid morning European dealing.

On the economic front the calendar was very light but the release of EZ Economic confidence surprising the market by printing better than expected at 105.6 versus 104.1 eyed. The gains were led by increase in services and industrial sectors continuing to show that conditions in the region are improving as ECB steadily pumps more credit into the system.

In North America today the calendar is once again very limited with only Consumer Confidence on the docket which means that equity flows are likely to dominate trade once again. If stock can rebound they will likely take USD/JPY back through the 120.00 figure while sending euro back below 1.1200. Overall however, this week has a decided look of range trading as markets simply bide their time ahead of the NFP report this Friday. With so many FOMC members sounding considerably more hawkish than just a few weeks ago any positive results in payrolls data, especially on the wage front, could finally convince the Fed that rates can be hiked from zero bound. Until then we are likely to see more seesaw action.

Boris Schlossberg
Managing Director

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