EUR Momentum is not to Specs Liking

Finally, today the US populace goes to the polls to elect their President, all members of the House of Representatives, and about a 1/3rd of the 100 members Senate. The billion dollars that both parties spent on advertising was becoming a little too nauseating. Predictions see a status quo result as most likely, with President Obama re-elected, the House staying under Republican control, and the Democrats maintaining a simple majority in the Senate. However, two other scenarios could occur. Mitt Romney as the new President and he will be with or without the control of the Senate.

Expect a Romney win to influence the markets along three themes a) Regulatory (a possible win bringing forth some regulatory relief; a plus for stocks, business confidence and risk. B) Monetary perspective (a win would give us a new Fed head in two-years. What will that do to current bond yields? It can only push them higher. c) And the Fiscal Cliff (Mitt winning would certainly address the G20 Fiscal Cliff concerns in a different light). In this winning scenario playing field, the ‘big dollar’ will look to out perform the EUR and JPY and negative against risk sensitive currencies. Make it easy; do not look beyond the above three themes for market guidance. Too much more noise will only complicate any trading decisions even further!

Are they just providing more lip service? G20 members are shocked to learn that economies are slowing. Where have the policy makers been? After their two-day meeting in Mexico ended yesterday, G20 members expressed their concerns in their final communiqué. “In light of the weak pace of global growth, the G20 members will ensure that the pace of fiscal consolidation is appropriate to support the recovery.” Members seem worried that previous commitments to cut half the budget shortfalls of advanced economies by the end of next year might hurt even the struggling economies. The already vetted targets seem well out of reach for many of the mentioned economies; modern day reality seems to have sobered up many of member’s financial ministers.

This morning’s data reveals that UK IP was weaker than expected in September (-1.7% m/m and -2.6% y/y) as oil and gas extraction posted their biggest monthly fall on record. Following a huge shock for Q3 GDP, sterling had been eyed as the “best buy of a bad bunch.” The recent run of bad news, and amid a heightened belief that Q3 data will be revised heavily, has cable looking vulnerable to a stronger sell off. What is the BoE to do this Thursday, if anything? Recent set of economic releases does not make their decisions any easier. Will policy makers embark on another round of QE? The oil and gas sector was the culprit for most of the disapproving headline, extraction decreased -20.9%.

The mystique of the RBA certainly threw a new cat amongst the pigeons last night. Aussie policy makers left their rate decision unchanged and ended up being perceptively less dovish than the market had been expecting. The “big” surprise was not the fact that they did not ease policy; it was more about the last two paragraphs of the communiqué. The official statement suggests that Governor Stevens might be done. The highlighted changes in the statement saw;

A) Growth in China having gone from being seen as “more uncertain” to having “stabilized”
B) Consumer strength in H1 that was seen as “temporary” last month is now described as “ongoing”
C) Wording about the housing market has turned slightly more constructive;
D) And finally interest rates to consumers have gone from being “a little below” their averages to “clearly below” average.

Policy makers are beginning to see signs that lower rates are impacting the economy via business demand for credit, stronger housing, and stronger equities. Is it not interesting that the RBA has done nothing despite being vocal about the AUD itself; the currency “remains higher than might have been expected”?

Already this morning the FX market has seen respected Asian investors buying EUR/JPY, while Russian commercial names have been buying the single unit outright, pushing the EUR to test again above the 1.28 benchmark. Judged by this mornings follow through, the spec market is little more than short the EUR’s. The lack of bearish momentum remains the EUR’s key risk. The stop losses located above 1.2828 already look vulnerable. The market is predominately short and relying on the fact that the market has broken below the 200-DMA (1.2830) targeting 1.2740-50 level. There is a rumor of a +7m EUR option payout at 1.2775 expiring today. The market continue to prefer to be a better sell of EUR’s on rallies