Donald Trump failed to score points in final debate; ECB under the spotlight

20 October, 2016

With 19 days remaining to the U.S. presidential election, the republican nominee Donald Trump whose poll numbers have bottomed last week failed to score points against his opponent Hilary Clinton in the third and final debate, at least this is what the Mexican currency had declared. The Mexican Peso, widely seen as a proxy of the U.S. presidential debate rose slightly against the U.S. dollar in Asia trade and is up 6.8% since the first debate on September 26. If polls continue to show Clinton expanding her lead over Trump this will reduce market volatility ahead of the election day on November 8 and lead investors to focus mainly on the earning season which so far indicates a high possibility to exit five quarters of profit recession.

The Aussie was the biggest loser in foreign exchange markets, dropping 0.7% against the dollar to end a 6-day rally after data showed the Australian economy lost 9,800 jobs in September. The big surprise came from full-time jobs, or in other words “good quality jobs” which saw firms cutting 53,000 employees from their workforce, suggesting that the Reserve Bank of Australia should take some sort of action when they meet on November 1. The newly appointed governor Philip Lowe highlighted on Monday that there is a lot more slack in the labor market than what the unemployment rate suggests, so it will remain to be seen whether another interest rate cut is on the way.

Trader’s focus will shift into the European Central Bank meeting later today for any indication on whether the bank is considering tightening monetary policy soon. We don’t expect any action in today’s meeting but the Euro will be driven by forward guidance from Mr. Draghi who will be faced with questions related to a recent unofficial report indicating tapering asset purchases. If Mr. Draghi decides to turn hawkish on the slight improvement in recent Eurozone data, then we assume the Euro is currently trading on the lower range bound for the short run with the potential of recovering most of October’s losses. The recent rise in global bond yields will ease the pressure on the ECB to amend the rules on asset purchases, but any indication of amending those rules would suggest expanding the program beyond March 2017.    

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