What Will Draghi Say?

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Market Drivers for August 7 2014

AU Unemployment rate explodes Aussie sinks below 9300

Nikkei 0.48% Europe 0.10%

Oil $96/bbl

Gold $1305/oz.

Europe and Asia:

AU Employment -0.3K vs. 13.5K

AU Unemployment Rate 6.4& vs. 6.0%
EUR German IP 0.3%% vs. 1.4%

North America:

GBP BoE Announcement 07:00

EUR ECB Announcement 7:45

EUR ECB Presser 8:30

USD Unemployment Claims 8:30

CAD Ivey PMI 10:00

The Aussie was badly hurt today in early Asian session trade after the unemployment rate rose a shocking 0.4% of a point sending the unit to two month lows below the .9300 level. The Australian unemployment rate rose to 6.4% from 6.0% – the biggest one month jump in more than a decade shocking investors who were positioned for a positive number.

Overall Australia lost -0.3K jobs in July versus estimates of 13.5K gain but all of the job losses came from part time sector while full time jobs actually increased by 14K. The rise in the unemployment rate as also due to an increase in participation rate which rose to 64.8% versus 64.7% eyed. Therefore the underlying was not nearly as gloomy as the headlines would suggest, but the psychological impact of such a sharp rise in the unemployment rate took its toll on the market.

The Aussie collapsed in the wake of the release and continued to slide for the rest of Asian and European sessions finding some support ahead of the 9250 level. Today’s data is unlikely to have much impact on RBA policy only reinforcing the central bank’s neutral stance but does suggest that the Australian economy may struggle with growth in H2 of this year especially if geopolitical conflicts dampen global demand.

For now the 9250 level has held, but North American traders may want to press the trade and test the stops around that barrier as the day proceeds.

Meanwhile focus in North American session will turn to ECB which is holding its monthly presser at 12:30 GMT. The key focus of the questioning will be the impact on region’s growth of the escalating tensions with Russia which have now turned from a political war of words to full blown economic sanctions on both sides that could significantly hamper trade in H2 of this year.

The ECB is facing a deteriorating economic environment in the Eurozone region with Germany clearly losing momentum in its vaunted manufacturing sector as today’s disappointing Industrial Production numbers clearly show. Industrial Production data rose only 0.3% versus 1.4% eyed as tensions with Russia weigh on sentiment.

Therefore it will interesting to see if Mr. Draghi acknowledges the difficult conditions in the region and more importantly if he suggests that the ECB may be prompted to take further easing action to offset these new challenges to growth. If Mr. Draghi does stress that point the EUR/USD could come under renewed selling pressure and test the 1.3300 barrier as the day progresses.

Boris Schlossberg
Managing Director

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