Instraday Market Thoughts

Euro Cracks, Aussie CPI Next

Jul 22, 2014 22:29 | by Adam Button

You would think some negative Eurozone headline would have been the catalyst for EUR/USD finally closing below 1.35 but it was simply the weight of the market that pulled it through. On the day, the Australian dollar led the way while the Swiss franc led. The focus will remain on the Aussie with CPI due later.  

It's been a grinding battle for euro bears since the ECB cut rates and introduced TLTROS but they can finally claim a small victory as the solid zone of support around 1.35 and the Feb low of 1.3477 finally gave way. Selling continued down to 1.3459 and the euro closed on the lows.

The main newsflow in US trading was negative for the US dollar, not the euro. Core CPI rose 1.9% versus 2.0% expected and the dollar took a broad 20-40 pip swoon. What was telling (at the time) was that the euro didn't participate in the rebound as sellers continued to hammer the earlier break of 1.3500. That indicates a heavy selling hand in the market.

An initial level to watch is the 200-week moving average at 1.3426. The selling wasn't limited to EUR/USD; the euro also fell to a 7-month low even as stocks and broad risk appetite improved. Aside from some oversold indications, there is very little going for the euro bulls at the moment.

Ashraf wrote about the upcoming Australian CPI report and some tell-tell signals about which way the report will go in the Premium Section. The report is due at 0130 GMT and expected to rise 3.0% y/y and 2.7% on the trimmed mean. 

We have a new set of Premium Insights ahead tonight's Aussie CPI & tomorrow's RBNZ rate decision. Less than 2 months after our AUDNZD longs hit their final targets, we issue a new ideas and trades on AUDNZD & NZDUSD.
Act Exp Prev GMT
Consumer Price Index (Q2) (q/q)
0.6% 0.6% Jul 23 1:30
RBA trimmed mean CPI (Q2) (q/q)
0.6% 0.5% Jul 23 1:30
Consumer Price Index (Q2) (y/y)
3.1% 2.9% Jul 23 1:30
RBA trimmed mean CPI (Q2) (y/y)
2.7% 2.6% Jul 23 1:30

Tonight's AUD CPI & Tomorrow's RBNZ

Jul 22, 2014 19:18 | by Ashraf Laidi

RBA governor Glenn Stevens was unusually silent last night with regards to talking down the Aussie. Does that mean tonight's Q2 CPI figures will be soft? And what do we make of tomorrow's RBNZ decision? Will the central bank go for the much telegraphed fourth rate hike despite an 8% decline in milk prices and escalating financing costs to dairy producers? Less than four weeks after we closed both of our AUDNZD longs at a profit, we issue 2 new trades on the pair, ahead of tonight's Aussie Q2 CPI and tomorrow's RBNZ decision with 3 charts highlighting the latest decline in dairy prices and technicals in AUD vs NZD. Meanwhile, our 2nd Premium short in EURUSD at 1.3610-1.3640 has hit its final target of 1.3460, for a total of at least 170 pips. This happened after the other EURUSD short from June 5th at 1.3660-1.3690 hit its final target of 1.3530 on Jul 16. Both EURAUD shorts are currently netting a total of 250 pips. Finally, the Premium Insights are also currently short EURJPY, with one trade at an entry of 137.40-137.70 and another trade at an entry of 138.00-138.30, netting a current running profit of 250 pips. Full full access to subscribers' Premium trades, please click here

Act Exp Prev GMT
Consumer Price Index (Q2) (q/q)
0.6% 0.6% Jul 23 1:30
RBA trimmed mean CPI (Q2) (q/q)
0.6% 0.5% Jul 23 1:30
Consumer Price Index (Q2) (y/y)
3.1% 2.9% Jul 23 1:30
RBA trimmed mean CPI (Q2) (y/y)
2.7% 2.6% Jul 23 1:30

Mexican Peso Running on Automode

Jul 22, 2014 12:14 | by Ashraf Laidi

As we approach today's release of Mexican May retail sales, the peso is further gaining ground, partly on booming auto production exceeding that of Brazil. Full charts & analysis.

Putin Not Backing Down, Stevens Up

Jul 21, 2014 23:12 | by Adam Button

Late last week traders began to look at the MH17 tragedy as an opportunity for to forge a peace deal but aggressive rhetoric returned on the weekend and risk trades faded. Overall moves were small but the Swiss franc led the way while the Australian dollar lagged. The Aussie will remain in focus with speeches from the RBA's Stevens and Debelle later.

At the moment the Ukraine story is all about tone. On Friday, Obama resisted the temptation to point fingers at Russia and a call for peace from Putin raised hopes that the Malaysian Airlines disaster could be the event that ends the violence. But on the weekend Secretary of State Kerry ramped up rhetoric and Russia began a campaign to spread the blame.

European stock markets soured to start the week and US 10-year yields fell once again, hitting as low as 2.445%. That put some pressure on the yen and boosted oil prices.

The effects diminished throughout the day but keep a close eye on the changing tone in the absence of other dominant themes in the market. Those could come as US earnings season ramps up Tues/Wed and the CPI report is released in the day ahead.

Before that the focus will be on the RBA with Debelle on a panel at 2325 GMT and Stevens speaking on policy at 0300 GMT. Stevens rarely misses an opportunity to talk down the Aussie and his latest comments hinted at low rates for longer and kept pressure on AUD/USD. Perhaps this could finally be the speech that breaks its hold on 0.9400.

Another event to monitor is an 0500 GMT form RBNZ deputy Spencer. With the decision due Thursday (NZ time) the likelihood of a hint on rates is low but the market is unsure about the decision and will look for hints. The OIS prices an 86% chance of a cut but further cuts are up in the air after a low Q2 CPI print last week.

Act Exp Prev GMT
RBA Assist Gov Debelle Speech
Jul 21 23:25
RBA's Governor Glenn Stevens Speech
Jul 22 3:00

Kiwi Turnaround in Focus, Specs Like CAD

Jul 21, 2014 0:42 | by Ashraf Laidi

It's a big week for US economic data and earnings but the most intriguing event could be the RBNZ interest rate decision. The kiwi was the worst performer last week while the yen topped the charts. Weekly positioning data shows a surprising bet on the loonie.  Geopolitical risks dominated markets late last week but some positive signs on the US economy are emerging and the policy hawks are beginning to make noise about Fed ZIRP and QE.

Higher inflation and better durable goods orders will push Yellen closer to talking about rate hikes and boost the US dollar.

For traders looking for more volatility the kiwi could be spot. It fell hard last week after CPI rose just 1.6% y/y compared to 1.8% expected. Ahead of the report the OIS market was pricing a virtual certainty that Wheeler would raise rates Wednesday but that has fallen to 82%.

Technically, NZD/JPY stalled out near the highs of the year and NZD/USD has turned sharply lower after a failure to break the 2011 highs. A surprise from the RBNZ would really get the kiwi moving lower, and that's something Wheeler & Co would love to see.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -63K vs -59K prior JPY -63K vs -66K prior GBP +39K vs +42K prior AUD +40K vs +37K prior CAD +16K vs +10K prior CHF -6K vs -7K prior NZD +15K vs +14K prior

There isn't too much to takeaway from this week's report but it's a bit surprising to see cable longs cut so quickly as the pound flirts with long-term highs.

The shift into Canadian dollar longs has been rapid and nearly all of those trades were underwater on Wednesday at the USD/CAD highs. Good news for the US dollar (perhaps CPI or durable goods this week) could give the dollar some life and launch the squeeze.

1 of the 2 Premium shorts in EURUSD remains in progress with 130 pips in the money awaiting its final target, which is found in the latest Premium Insights. Both Premium trades in EURJPY from Jul 13 are in progress, with entries @ 137.50 & 138.00. Highlights in the week ahead include the US CPI and durable goods orders reports.

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