Daily Report: ECB, BoE, Obama, Bernanke Watched Today

Other than some employment data triggered weakness in Aussie, markets are generally steady in Asia today. Investors are holding their breath ahead of some key events. ECB meeting will be a main focus. It's widely expected that the bank will keep rates unchanged at 1.50%. Trichet will have his second last press conference before he steps down in November. The focus will be on whether ECB would turn more dovish on growth and would there be downward revision in staff projections on growth and inflation. In additional, Trichet's comment on bond buying, in particular Italy and Spain, would be closely watched. At the moment, like others in the markets, we're expecting ECB to be hold through through 2012. 

However, markets could start to price in rate cut from ECB, based on worsening sovereign crisis as well as deteriorating growth out look, should Trichet starts to turn dovish.

BoE meeting will likely be a non-event as the bank would keep rates unchanged at 0.50% and the asset purchase program unchanged at GBP 200b. However, it's expected that the debate on expanding the asset purchase program would continue. There is little chance that BoE would add to the quantitative easing program today. But BoE is indeed relatively unpredictable comparing to other major central banks and should the BoE announce new stimulus, the pound would be under much pressure.

Another two main focuses will be on speech from US President Obama and Fed Bernanke. Obama is expected to reveal a $300B plan stimulus the job market before the Congress. Measures are focused on tax cuts, infrastructure spending and assistance to local governments. The media said measures will include a 1-year extension of payroll tax cut for workers and an extension of expiring jobless benefits. Investors are desperately hoping that the measures will work as the job market has remained dismal in the US. Employment stagnated in August. While private sector positions increased +17K during the month, these were offset by the -17K decline in government jobs. The unemployment rate stayed unchanged at 9.1%. Meanwhile, markets will try to get further affirmation from Bernanke that Fed will expand the stimulus programs Septembers meeting. Nevertheless, we won't expect Bernanke to reveal what's the preferred option for additional stimulus before the two days FOMC meeting.

In the Beige Book compiled by the Kansas City Fed covering the period before August 26, it's stated that economic activity continued to 'expand at a modest pace, though some Districts noted mixed or weakening activity'. Consumer spending 'increased slightly in most Districts' but 'non-auto retail sales were flat or down in several Districts'. Manufacturing activities were 'mixed across the country, but the pace of activity slowed in many Districts'. The employment market was mostly described as 'stable' although there were reports of modest growth in some Districts. The tone of this Beige Book was obviously more downbeat than the previous one. However, while the report showed that growth was below trend, it did not signal signs of recession. Moreover, the employment outlook was not miserable.

On the data front, Australia unexpectedly lost -9.7k jobs in August while unemployment rate rose to 5.3%. The data gave some pressure on Aussie in Asian session. Japan eco watcher survey current dropped sharply to 47.3 in August. Current account surplus narrowed to JPY 0.75T in July while machine orders dropped -8.2% yoy. Swiss unemployment rate was unchanged at 3.0% in August. German trade surplus narrowed to EUR 10.1b in July. Canada building permits, new housing price index, trade balance, US trade balance and initial jobless claims will be released later today.

AUD/USD Daily Outlook

Daily Pivots: (S1) 1.0434; (P) 1.0530; (R1) 1.0580; 

Intraday bias in AUD/USD remains neutral for the moment. At this point, we're still favoring the case that corrective rebound from 0.9926 is over with three waves up to 1.0764. Hence, we'd expect the current recovery to be limited below 1.0764 and bring another fall. Below 1.0481 will target 1.0314 support first. Break will target a test on 0.9926 low. Nevertheless, break of 1.0764 will invalidate this view and bring stronger rise towards 1.1079 high instead.

In the bigger picture, rise from 0.8066 has completed with bearish divergence in daily MACD at 1.1079. However, AUD/USD is staying well inside long term rising channel from 2008 low of 0.6008. Hence, there is no indication of trend reversal yet and the price actions from 1.1079 are viewed as a correction only. Hence while deeper decline would be seen to long term channel support and possibly below, we'd expect strong support from 0.9404 resistance turned support to contained downside.