The release of Oct US ISM manufacturing index could add more strength to the greenback to press the single currency down further below 1.35 psychological level as it rose to 56.4 while the market was waiting for retreating to 55 from 56.2 in September.

The single currency has been already under pressure since the release of Oct EU HICP flash reading yesterday which has shown falling to 0.7% y/y while the market was waiting for 1.1% as the same as September to be added to the weakness of the US labor market which has been highlighted too yesterday by reaching a new high unemployment rate in September at 12.2% while the consensus was referring to easing back to 12% from 12.1% in August to drive the speculations of having another easing step by the ECB higher.

Here, I should remind you with the recent easing movement by the ECB which has been on 2^nd of last May by cutting the interest rate to 0.5% from 0.75% when the unemployment rate rose in April to 12.1% with easing of April HICP to 1.2% yearly suddenly from 1.7% in last March while the ECB yearly target of this indicator is 2% to show that the inflation is actually subdued and well-anchored.

I should remind you also with the ECB president reference before last month ECB meeting that having another LTRO is not a ruled out option and the ECB is also technically ready to drive the deposit rate into the negative territory whenever it is needed and he has mentioned following the last meeting to occurred discussions about cutting the interest rate.

The Single currency has been already under pressure technically also after inability to cross above the 61.8% Fibonacci retracement level of its falling from 1.4938 to 1.2042 at 1.3831 versus the greenback which has been supported across the broad following the Fed’s expected decision of keeping the QE monthly scale unchanged at $85b to trigger a profit taken wave on buying on rumor selling on fact concept. It has been fully priced economically not just politically too following the dovish US nonfarm payrolls of Septemer which has been followed this week by the release of Oct ADP employment change which has shown adding 130k while the market was waiting for 150k jobs after adding 166k in September have been revised to 145k to show the need for supporting the demand for hiring at this gradual pace of labor market recovery while the inflation continued to give weak signs of pricing power as Sep CPI go down further to 1.2% as what has been expected from 1.5% in August to prove that the Fed has no reason to be in rush for tapering.

The market reaction following this concluded decision was not a surprise especially as the Fed’s assessment has not referred to any certain date behind 7^th of next Feb in what could be like another forwarded guidance on the next cycle of political negotiations about the Debt ceiling hiking and in the same time, it has not downplayed the political risk and that’s why it is still looking to the markets that it is only a matter of time before getting the economic indicators which can convince the Fed to start tapering and that is supporting the greenback too. 

The pressure on the Aussie dollar versus the greenback continued also following that Fed’s decision to continue diving further until now to reach 0.9428 following Oct ISM manufacturing bullish release but generally the Aussie has been under pressure since the Australian Treasurer Joe Hockey’s decision to offer $8.8 billion to expend its ability to execute foreign exchange operations in a better flexible way can also help it to intervene easily in the forex market to trim the Aussie dollar appreciation when it sees that it should do and this pressure on the Aussie dollar gained pressure with the worries about the Chinese financial Market which can dampen the growth outlook of this leading economy which depends on the Australian commodities market.

Kind Regards

FX Market Strategist

Walid Salah El Din

Mob: +20 12 2465 9143

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