Euro Advanced Due to Tensions Within The ECB

The euro strengthened on Tuesday following a report citing internal tensions within the European Central Bank. The Eurozone’s national central bankers plan to challenge the ECB President Mario Draghi at Thursday’s meeting, over his move to set a target for increasing the Bank’s balance sheet size, after the Governing Council agreed not to make any figure public. This left the market expecting limits on future ECB monetary policy and a balance sheet size target to be achieved. The euro advance could be attributed to the fact that the markets where pricing a large scale QE program, but after the reported tensions and disagreements within the ECB these expectations have been reduced.
What’s more, the reported tensions came after the European Commission slashed its Eurozone economic growth forecast. However, this had limited impact on the single currency as the market had already partly priced in the slower growth.

Elsewhere, the Bank of Japan Governor Haruhiko Kuroda who last week surprised the markets by expanding the Bank’s massive monetary stimulus program, said that the Bank is ready to do more to hit its inflation target. The Japanese yen weakened further following Governor’s comments on expectations that further measures could be taken if the Bank fails to reach its target.

In New Zealand unemployment rate fell to 5.4% in Q3, from 5.5% in Q2, the lowest level last seen in Q1 2009. At the same time, the participation rate rose to 69% in Q3 from 68.9% in Q2 and average hourly earnings accelerated to 1.4% qoq from 0.5% qoq. Given that the inflation rate remained unchanged at 0.3% qoq in Q3, this suggests that the real average earnings accelerated in Q3. This could add upward pressure on consumer prices in the coming months. NZD/USD surged following the strong employment data and broke our resistance level of 0.7800 and remained elevated during the Asian session. I believe that even though labor market seems to gain momentum, the Reserve Bank of New Zealand will need more evidence on the country’s economic condition to alter its on-hold stance.

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Today’s indicators

We get the final service-sector PMIs for October from the countries we got the manufacturing data for on Monday. As usual, the final forecasts from France, Germany and Eurozone are the same as the initial estimates, while the UK service-sector PMI is expected to have decreased slightly. The revisions in the final manufacturing PMIs on Monday, increase the possibilities that we could see revisions in the service-sector PMIs as well. Eurozone’s retail sales for September are also coming out and they are expected to have declined on a monthly basis, adding to the recent weak data coming from the bloc.

In the US, the most important indicator we get is the ADP employment report for October two days ahead of the NFP release. The ADP report is expected to show that the private sector gained slightly more jobs in October than it did last month. That would probably be USD-supportive. The final Markit service sector PMI and the ISM non-manufacturing index both for October are also to be released.

We have three Fed speakers on Wednesday’s agenda. Minneapolis Fed President Narayana Kocherlakota, Richmond Fed President Jeffrey Lacker and Boston Fed President Eric Rosengren also speak.

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