You could almost hear the market’s relief that it is Friday, given the turbulence and wide swings that took place during the week just past. Euro / dollar was trading around the 1.28 level, whereas dollar / yen was managing to hang on to the 106 level; trading around 106.20. US stocks were more or less stable during the previous day’s trading while stock index futures were higher during Asian trading.
US data came in overall strong the previous day – particularly jobless claims – while industrial output was also quite encouraging. But what might have turned the situation around was the idea floated by centrist (i.e. neither a dove nor a hawk) Fed Governor James Bullard that the US central bank should extend the Quantitative Easing program as long as inflation expectations remain low. The idea of additional QE injections – since this month, October, is the one when QE is supposed to wind down – was an interesting one that caught a lot of traders’ attention. This might have been a factor that helped euro / dollar to recover and stay around 1.28 for now.
However, this proposal is a touch premature given that most US economic data are holding up well and such a step may lead to an erosion of confidence in the US economy and accusations that the Fed was simply propping up the stock market. Since Bullard’s views do carry some weight, it is also too early to outright dismiss this idea. Janet Yellen is also speaking today and her speech will be followed very closely as it will be the first time she addresses the public after this wave of market volatility. If there are any Fed policy changes she is thinking about, she could take the opportunity to air them. Yellen’s speech will take place early in the US session.
It will be a very quiet European session data- and event-wise, with just some central bank officials speaking but the market may not move much by their comments. During the US session, housing starts and building permits for September will come out as well as the important statistic of the day which is University of Michigan preliminary Consumer Sentiment.