Market Drivers October 4, 2012
Australian Retail Sales miss
Markets moribund ahead of ECB and BoE
Nikkei 0.89% Europe -0.41%
Oil $88.47/bbl
Gold $1787/oz.

Europe and Asia:
AUD Retail Sales 0.2% vs. 0.4%
CHF Industrial Production
EUR ECB Rate Decision
GBP BoE Rate Decision
GBP BoE Asset Purchase Target

North America:
USD Initial Jobless Claims 8:30
USD Factory Orders 10:00
USD Fed Releases Minutes from Sept 13 Meeting 14:00
CAD Ivey Purchasing Managers Index 10:00

An extremely quiet night of trade in the FX markets, as most participants simply sit on their hands awaiting the ECB press conference later today. The ECB is not expected to announce any fresh policy initiatives but traders will be listening intently to Mr. Draghi’s remarks on the state of the economy in Europe as well as any hints for further action before the year end.

With eco calendar essentially barren, the only major data point came out of Australia where the retail sales report disappointed printing at 0.2% versus 0.4% eyed as consumers Down Under remained cautious amidst a slowing economic environment.

Overall retail sales were soft with consumers spending -1.5% less on household goods while demand at cafes and restaurants dropped -0.9%. However department stores sales surged by 6.9%. Final demand in Australia is clearly slowing amidst concerns over the global economy and a marked decline in exports of iron ore and coal from China. As Australian economic data continues to deteriorate markets are betting that the RBA will lower rates once again with interest rate futures indicating a 75% chance of another 25 basis point cut in the benchmark rate in November.

The Aussie tumbled below the 1.0200 level in the aftermath of the release, but rebounded in European trade on some corporate demand and uptick in risk appetite after the first US Presidential debate showed that the challenger Mitt Romney clearly won the night. Despite the recovery in overnight trade the Aussie remains under heavy selling pressure as the economic news from the region continues to disappoint. The pair sees very heavy short term support near the 1.0150 level, but if that barrier is broken over the next several days, the move towards parity will become almost inevitable.

In North America today the calendar carries unemployment claims and factory orders but the focus is likely to be on the reaction to the first Presidential debate which is almost universally viewed as a win for Mitt Romney and may therefore provide a modicum of support for risk appetite. Still, with key NFP numbers due out tomorrow, the price action may remain subdued for the rest of the day as the grinding, low volatility environment continues to reign over FX.

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