Intraday Market Thoughts

BoE QE2 by 75 bln, ECB Next

by Patrik Urban
Oct 6, 2011 12:14

BoE held rates steady and increased the Asset Purchase Facility to 275 bln from 200 bln; Swiss CPI rose; German Factory Orders fell; Market turns to Trichet's press conference, US jobless claims and Canadian Ivey PMI.

The risk rally that started yesterday on the back of bank recapitalization talks continues today underpinned by the president of the European Commission Barroso who said that coordinated action by member states to recapitalize banks is being proposed. EURUSD gained almost 60 pips and reached to 1.3398.

German factory orders fell -1.4% in August from -2.6% in July. EURUSD lost about 20 points on the news but it is likely to stay within a narrow range as traders' attention will shift to ECB rate announcement at 7:45 am ET and the press conference at 8:30 am ET. The ECB is generally expected to hold rates steady and announce additional liquidity facilities. Last Friday's Eurozone CPI that soared to 3.0% from 2.5% makes the rate decision difficult to predict because fundamentals have shown a significant deterioration over the past few months.

Ashraf is predicting a 25bp cut and reintroduction of 1 year liquidity measures.

BoE held rates steady at 0.5% as expected and announced new QE in form of an increase of the Asset Purchase Facility to GBP 275 bln from GBP 200 bln. Asset purchases will resume next week and will take four months to complete. GBPUSD dropped 200+ points on the announcement.

Swiss CPI jumped 0.3% in September from -0.3% in August. Annual CPI rose to 0.5% from 0.2%. CHF traders were more excited about a comment by Swiss State Secretariat for Economic Affairs that CHF should be capped at 1.30 or even 1.40 against the EUR. EURCHF jumped from 1.2330 to 1.2425 on the news but has since fallen back to pre-statement level.

The New York session will start with ECB press conference at 8:30 am ET. Traders will be watching for any hints that the ECB could cut rates during its November meeting. Jobless claims that are due at the same time are expected at 411K from previous 391K.

At 10:00 am EST Canadian Ivey PMI for September is due and is seen higher at 58.2 from 57.6.


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