USD – The dollar is mixed this morning as investors weigh global central bank stimulus measures against relative economic growth in the world’s major economies. After the ECB’s announcement of their bond-buying programs and the Fed of QE3, all eyes turned to the BoJ who has now also eased monetary policies. The resulting boost in liquidity has helped most financial markets higher this morning, but underlying economic concerns continue to limit gains. Domestically, investors were paying close attention to key housing data after Fed Chairman Bernanke singled out a rebound in the housing sector as one of the missing ingredients from the US’s economic recovery thus far. Existing home sales soared to a two-year best, jumping 7.8% from the previous reading to a 4.82m annualized rate. However, housing starts gained by less than anticipated, rising to 750k from 733k, but short of the 767k that was expected. Moreover, building permits – a forward looking indicator of future construction – fell to 803k from 811k in the previous reading. While the numbers are by no means a home run, the surprising bump in existing sales suggests that the market is gaining traction. The dollar remains towards the bottom of its recent ranges, but technical indicators suggest that a break back above the key 80.00 level on the dollar index is likely.
EUR – The euro consolidated within its recent ranges overnight near the key 1.30 level against the USD. Investors are bit more optimistic about the outlook for the Eurozone this morning as Spain moves closer to requesting ECB assistance, but the region’s continued struggles with debt are limiting any further EUR gains. Spanish Deputy PM Santamaria told opposition lawmakers today that the administration has called on the ECB to buy Spanish debt. Meanwhile PM Rajoy announced new austerity measures likely more to address Eurozone lawmakers’ concerns rather than improve his nation’s finances. While there are still obstacles ahead in terms of the ECB’s conditions that Spain must meet to receive aide, the move towards a “bailout” has helped Spanish bonds enjoy their best month of gains in more than a year. While a Spanish “bailout” will at the minimum eliminate uncertainty, investors are already looking on to the next flashpoint in the three-year old Eurozone debt crisis and whether the funds in place – the ESM/EFSF – can handle further requests. However, while it appears the EUR/USD has crested, the relative strength indicator, which had been signaling that the pair was overbought for the past six sessions, has now fallen back below the key 70.0 level. As such, further consolidation is to be expected in the pair until more information about Spain’s request for aid is known.
GBP – Sterling eased some of its recent gains overnight, but remains relatively well supported against both the USD and EUR. Minutes from the BoE’s last meeting showed that policymakers voted unanimously to maintain its bond purchasing target. However, several members felt that further stimulus was “more likely than not” with the Bank’s QE program likely reaching £500B and with a “decent chance” of a rate cut in November. Consequently, the pound’s recent rise appears tenuous at best.
JPY – The yen traded through a volatile overnight session after the BoJ followed suit and expanded its asset-purchase program by ¥10T. The boost in liquidity initially saw the yen weaken back towards its recent lows in the mid 79’s reached in August. However, investors have since taken the relative weakness to add long JPY positions, thus sending it back towards the middle of its recent ranges. However, today’s measures likely won’t be the BoJ’s last with further easing now expected in either October or November.
Commodity Currencies – The commodity linked currencies are mixed this morning with both the CAD and MXN falling while the AUD and NZD gain. Raw goods are similarly varied with oil falling to $92/bbl, gold flat at $1772/oz, and copper rising to $380/lb. The CAD and MXN are both lower this morning as the price of oil – a major export for both Canada and Mexico – fell for a third straight day as US stockpiles gained by more than expected. On the other hand, both the AUD and NZD gained after the BoJ decision prompted a bit of risk taking. However, Aussie yields may come under further pressure as slowing inflation gives the RBA room to ease policy further should they see deem it necessary.