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IronFX Daily Commentary | ECB’s Coeure: The decision to ease in December has not been taken | 12/11/2015

12.11.2015, 10am

• ECB’s Coeure: The decision to ease in December has not been taken ECB’s Executive Board member Benoit Coeure said on Wednesday that the decision for further easing has not been taken and that the debate is ongoing. The remarks from the Bank official emphasized that the new ECB forecasts provided at their December meeting will be key to decide to act. In the meantime, other Governing Council members including Estonia’s Ardo Hansson and Slovenia’s Bostjan Jazbec have also urged caution over further easing. As not all officials’ clearly support further stimulus or another deposit rate cut, EUR/USD remains supported above 1.07. ECB’s President Draghi testifies before the European Parliament later today, and should his comments confirm Coeure’s “wait and see” stance this has the potential to trigger a short-term EUR rally.

• Overnight, the Australian dollar surged after the Australia’s strong employment report waned expectations of an interest rate cut by the end of the year. The unemployment rate fell to 5.9% in October as the net change in employment soared to 58.6k. The data beat market expectations of an unchanged unemployment rate at 6.2% and an increase of 15k jobs. Overall, the robust jobs report confirmed the upbeat view of the Reserve Bank of Australia (RBA) over the labour market, something that we saw in the Bank’s Statement on Monetary Policy last week as well as in the minutes of their October meeting. The Bank noted that the sector had proved healthier than expected and that forward-looking indicators have generally been consistent with lower unemployment rate in the coming months. AUD/USD rallied on the news recovering all the losses following the solid US employment report on Friday, while AUD/NZD broke above the downslope trend line taken from the lows of 4th of November and the resistance-turned-into-support level of 1.0870. Given the strength of USD due to the Fed rate hike expectations, I would be cautious for further AUD/USD upside corrections and I would prefer to take advantage of AUD strength against NZD.

• Today’s highlights: During the European day, the final German CPI for October confirmed the initial estimate, thus the market reaction was limited at the release. Eurozone’s industrial production for September is expected to have declined at a slower pace than in August. Having in mind that the Eurozone manufacturing PMI declined in September and that the German IP for the same month fell by more than anticipated, I would expect another disappointment here as well.

• In Sweden, we get the CPI and CPIF for October. The headline inflation rate is forecast to have remained unchanged at 0.1% yoy, while the CPIF rate is expected to have risen by a percentage point. At its latest policy meeting, the Riksbank noted that economic activity in Sweden is strengthening and inflation is showing a clear upward trend. The CPIF data seem to be in line with that view, but bearing in mind that the Bank is very concerned regarding the strength of the global economy and that the ECB looks ready to pull the trigger for further stimulus, we believe that these data will not be enough to ease the pressure from the Riksbank to act again in the foreseeable future. We maintain our SEK bearish view.

• From the US, initial jobless claims for the week ended on Nov. 2 are forecast to have declined to 270k from 276k the previous week. However, this will drive the 4-wk moving average up to 266k from 262k. Although the 4-wk moving average is expected to have risen somewhat, it remains at levels that point to a strong labour market. The Job Opening and Labor Turnover Survey (JOLTS) report for September is due out as well and the forecast is to get the same number of job openings as in August. This survey will also bring the “quit rate,” a closely watched indicator of how strong the job market is. More US job data that point to a robust employment sector are likely to add to expectations for a Fed lift-off in December and support the USD.

• We have two ECB, five Fed, and one BoE speakers on Thursday’s agenda. ECB President Mario Draghi speaks at the Quarterly Hearing of the European Parliament. ECB Governing Council member Jens Weidmann also speaks. From the Fed we have Chair Janet Yellen, St. Louis Fed President James Bullard, Richmond Fed President Jeffrey Lacker, Chicago Fed President Charles Evans, and New York Fed President William Dudley. BoE Chief Economist Andy Haldane speaks as well.



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