Is EUR euphoria premium to be priced out?

The dollar is tired battered and bruised and certainly did not see the strength of EURO euphoria coming this week. In just a few short sessions “tail risk” price has been markedly reduced. Certain dealers will tell you that the market is putting the “donkey before the cart” and some of the euphoria “premium” will have to be revalued. The Euro-summit deals need to hold up to scrutiny. Policy makers and leaders have a tough marketing job ahead of them to maintain this market euphoria.

On tap for next week, month end flows are expected to be dollar negative. The market again will have to be nimble with the amount of event risk being produced. The ECB, RBA and FOMC all have policy statements due, certainly easing and QE3 questions will be asked. Capital markets will end the week with the ‘King of Kings’, the Non-Farm Payroll release and the G20 meetings.

Below are some other highlights of the week:


  • USD: Constructive news in Europe and positive US earnings had the dollar under pressure heading into the midweek EU Summit.
  • Fed: NY Fed President Dudley, Governor Tarullo and Vice Chair Yellen’s dovish comments this week about possible further asset purchases managed to help push risk appetite “temporarily” higher. Hints at possible further easing from the US is working to reduce “tail risk perceptions”.
  • USD: US consumer mood remains black this month. Confidence headline prints have reverted to recessionary levels (39.8 vs. 46.4) as individuals turn more pessimistic about the US labor market. The underlying details were also horrible. Consumer expectation for economic activity over the next six months dropped to 48.7 from a revised 55.1. The present situation index fell for the sixth consecutive month to 26.3 from 33.3. The numbers piggyback recessionary levels of three years ago.
  • USD: House prices rose modestly in August on seasonal effects (fifth consecutive monthly increase of +0.2% for the S&P’s Case-Shiller home price index). Adjusting for seasonal factors, the 20-city index was flat. Despite modest glimmer of hope, the US market remains depressed despite lower prices and low historical interest rates.
  • CAD: Governor Carney kept Canadian O/N rates on hold (+1%), citing greater risks to the global economy and that the ‘outlook for the economy had weakened since July, with significant less favorable external environment affecting Canada through financial, confidence and trade channels’. Economic momentum is to remain ‘modest through out the middle of next year’. The BoC cut its economic growth outlook and has removed a reference to withdrawing stimulus from its statement.
  • USD: Septembers US durable headline (-0.8%) was in line with market expectations (-0.9%) after an unrevised -0.1% decline in August. Ex-transportation, the data shows surprising strength, with a rise of +1.7%, keeping the trend positive after a -0.4% decline in the previous month. Analyst’s note that expanding economies overseas and a-14% drop in the dollar in 14-months is propelling US exports to record levels.
  • USD: Sales of new US homes rose for the first time in five months in September (up +5.7% or +313k vs. +300k), however, prices continue to drop underscoring the persistent weakness of the US housing sector. The median price for the month declined -10.4%, y/y, to +$204.4k.
  • CAD: The BoC quashed expectations of interest rate hikes and downgraded its growth forecasts in its Monetary Policy Report, citing Europe’s debt crisis and weakness in the country’s top trading partner south of its own border. The annualized pace of expansion will average +1.8% in the four quarters through June, compared with a previous estimate of +2.8%. The bank cut its projection for global growth next year by-0.9%, and it said the recovery will be slower than usual as consumers, governments and businesses reduce debt. The currency is underperforming on the crosses.
  • USD: After stronger US growth numbers they market seems focused on risk recovery continuing in currencies geared to US growth (its neighbors North and South).
  • USD: Q3 GDP estimate reported a +2.5% annualized increase, stronger than the preceding three quarters and an improvement on the first half of this year. Greatest support came from consumers, who have reduced their savings to boost purchases while at the same time companies are stepping up their investment in equipment and software. The only negative in the breakdown being a sharp slowing down in inventory growth.
  • USD: Core (+2.1%) and headline PCE (+2.4%), inline with expectations, suggests that the underlying inflationary momentum is as how the FED likes it. They meet next week. Consumer spending (+70% of GDP) rallied +2.4% with the increase mostly spent on durables (+4.1% in autos). Fixed investment was up a staggering +13.7%, corporations are finally beginning to loosen their purse strings.
  • USD: New weekly claims fell ever so slightly last week (-2k to +402k), yet remain elevated and above that psychological +400k print. The more reliable indicator, the four-week moving average edged higher +1.75k to +405k. Despite spending more on fixed investment in the Q3, companies are unwilling to hire en masse.



What will the BoJ do?



  • Market gets rate and policy announcements from the RBA, FED and ECB
  • GDP data from CAD and GBP
  • Manufacturing releases from CNY, GBP and USD
  • Employment changes and costs, NZD, USD and CAD
  • Building consent and permits from NZD, GBP and CAD
  • Retail Sales comes from AUD
  • Ending the week with CAD Ivey PMI


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell