Squeeze on USD long positions; ECB disappoints market with statement; GBP on the slide and European equities struggling

By Kymberly Martin

NZ Dollar

The NZD/USD has been the strongest performer out of its peers over the past 24-hours, sitting at 0.7880 this morning.

The NZD/USD had been drifting higher on the day yesterday. The release of the September ANZ commodity index presented a mixed bag. While, unsurprisingly, the dairy component was off 6%, international prices for meat, skins and wool increased 3.2% in the month. There were signs of stabilisation in forest product prices. But it did not appear to provide much in the way of news for the currency.

Then late afternoon, there appeared to be a sudden squeeze on USD long positions. This resulted in a gap higher in most majors. This was most dramatically seen in a short squeeze in the NZD, one of the least liquid G10 currencies. From 0.7840, the NZD/USD suddenly found itself about 0.7900. The currency then traded a broad band overnight, sitting at 0.7890 at present.

The move also catapulted the NZD higher on the crosses. However, overnight, most have consolidated, except the NZD/GBP which has pushed on up toward 0.4900.

Today there are no data scheduled on the domestic agenda. The market will be in limbo ahead of tonight’s US payrolls release. A payrolls number that only meets, or undershoots expectations, could see further heat come out of the USD. This could extend the near-term bounce in the NZD/USD. However, our long-term view remains for a downtrend in the NZD/USD, to 0.7300 at end-2015.

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Majors

The USD index declined overnight, in fairly volatile markets. Over the past 24-hours the key outperformers have been the NZD and AUD, while the GBP has underperformed.

Market malaise continued overnight, with the ECB providing nothing to improve the mood. Although it diligently set out its plans on asset purchases, it did not provide any dramatic new measures that the market may have been hoping for. The Euro Stoxx 50 fell 2.8%, while the S&P500 is currently grappling its way off intra-night lows, to be down 0.3%.

The ECB’s comments prompted a fair amount of volatility in the EUR/USD. It appeared inclined to rally on the facts of the announcement, after its sharp fall in recent weeks, in anticipation. The EUR/USD sits slightly higher, at 1.2680 this morning.

The GBP did not fare so well overnight. It was on a slide from early evening, a move that was not curtailed by a solid reading of the September UK Construction PMI (64.2 vs. 63.5 expected). The GBP/USD sits at 1.6140 currently.

The JPY also gained some ground overnight as upward momentum in the USD waned. The USD/JPY has returned to trade at 108.20.

Today the smattering of Services PMI readings (China, Eurozone, UK, US) and Eurozone retail sales data, will simply serve as an entrée to tonight’s main event, US payrolls. Consensus looks for 210k in September, from 134k the previous month. Given the dramatic run-up in the USD index since the last reading, the risks are likely now tilted toward an underwhelming number temporarily slowing the USD’s upward momentum.

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