Can Mario Keep it Super?

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Market Drivers September 12, 2019
USDJPY takes out 108.00 but fades off highs
All eyes on ECB
Nikkei 0.75% Dax 0.09%
UST 10Y 1.72%
Oil $55/bbl
Gold $1504/oz
BTCUSD $10,000

Europe and Asia:

North America:
ECB Rate 7:45
ECB Presser 8:30

More positive murmurings on the US-China trade front helped fuel a small rally in yen pairs during the Asian session trade but some of the enthusiasm wore off by the time London dealing came online.

President Trump delayed an increase in tariffs by 15 days as a gesture of respect and goodwill towards the Chinese from whom October 1 data holds a special meaning in the calendar, and in the Chinese in turn, also stated they would increase some purchases of agricultural products. The thaw in relations was viewed as by the markets and helped push USDJPY through the 108.00 figure in early Asian trade, but the pair stalled out above the figure and fell below once again as US yields gave up their gains.

For USDJPY, Friday’s US Retail Sales report holds the key to future gains. If the number proves better than forecast, it would solidify the thesis that US consumer remains unfazed by the global slowdown and will almost certify that the Fed will not ease by more than 25bp next week.

Today, however, the focus is squarely on Mario Draghi and ECB as the President has the thankless task of trying to put together a stimulus package that would help revive the EZ moribund economy. In truth, of course, there is little that Mr. Draghi can do to truly help fuel growth as monetary policy in the region appears to have reached its limits. Further cuts in rates, increase in QE, easing of terms in TLTRO or adjustment in tiering will have a cosmetic impact at best.

The EZ does not suffer from tight credit but rather weak demand and therefore needs massive fiscal stimulus rather than monetary action. Yet Mr. Draghi’s hands are tied by the political reality in the region, so the market will simply react to the measure at hand. Still, the EURUSD pair is holding up pretty well ahead of the release has once again found support at the 1.1000 level. If Mr. Draghi can offer some further credit relief and more importantly stress the need to fiscal stimulus the pair could respond favorably after any initial knee jerk selloff and may push towards 1.1100 as the day proceeds.

Boris Schlossberg
Managing Director

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