Instraday Market Thoughts

SNB: 3 years minus 5 days

Sep 1, 2014 20:09 | by Ashraf Laidi

3 years minus 5 days, the Swiss National Bank delivered its stealth intervention to the cap the soaring franc as capital fled into the safety of the Swiss currency during the Eurozone debt. Now that EURCHF has fallen to 21-month lows, losing 5% from its 2013 highs, the SNB is back to reminding markets of its pledge to defend the franc and that the “environment has deteriorated for Switzerland”. What would this mean 3 days ahead of the ECB decision? Any impact on the already falling EURCHF? Will the ECB do the work for the SNB, or will the Swiss intervention army be deployed yet again? One of our CHF Premium trades is currently netting more than 150 pips. Today, we added a new CHF trade with 2 charts ahead of tomorrow's Swiss Q2 GDP. Trades & charts here.

Act Exp Prev GMT
GDP (Q2) (q/q)
0.5% 0.5% Sep 02 5:45
GDP (Q2) (y/y)
1.7% 2.0% Sep 02 5:45

Fear or Fundamentals?

Aug 31, 2014 23:19 | by Adam Button

The separatist counteroffensive in Eastern Ukraine means violence and sanctions will be a main theme in the day ahead but the underlying story US economic improvement and European malaise continues. Last week the Canadian dollar was the top performer while the euro lagged. CFTC positioning data showed more sellers in the euro and yen.

The Ukraine counteroffensive has put the region back on the front pages and Western leaders are already talking about fresh sanctions. A round of risk aversion on an escalated war of words or any dramatic developments on the ground could rattle markets. On the weekend, Putin called for Eastern Ukrainian “statement” but a Kremlin spokesman appeared to take back the remarks.

The turn of the calendar also brings a wave of tier 1 data and announcements. Ultimately the situation in Ukraine will resolve and fundamentals will be the driver. US data has been a non-stop positive surprise and good numbers from the ISM surveys and non-farm payrolls would almost certainly cause a hawkish shift at the Fed.

The dollar was less robust last week but with traders returning from holidays and the turn of the month, a renewed push into dollar longs is possible.

At the same time, the most-anticipated announcement in the week ahead is the ECB. Some type of announcement, either a rate cut or ABS purchases is about a 50% probability but traders are unsure what to expect and volatile trading is almost a sure thing. We'll have more as the week rolls on.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
  • EUR -151K vs -139K prior
  • JPY -103K vs -87K prior
  • GBP +15.5K vs +13K prior
  • AUD +42K vs +37K prior
  • CAD +6K vs +7K prior
  • CHF -13K vs -15K prior
  • NZD +12K vs +12K prior
Euro and yen shorts continue to pile in and leave the market vulnerable to a squeeze. Other positions were relatively unchanged. 

GBP Braces for September

Aug 29, 2014 19:01 | by Ashraf Laidi

GBPUSD has managed to avoid its 8th consecutive weekly decline, something last seen during the 1976 sterling crisis and GBP bulls are focusing on a few chart developments such as a weekly doji candle resting right above the 55-WMA. Picking new longs may make sense, but to up to what point? GBPUSD will undoubtedly be impacted by the upcoming key US releases (ADP, manuf ISM and payrolls), ECB decision and the UK releases , namely the monthly UK PMI trifecta. Further indications on the latest opinion polls ahead of the Sep 18 Scotland referendum should also become a factor as the “Yes” camp is closing in on the “No” camp. Following a month when GBP lost ground against all major 10 currencies, with the exception of EUR, find out our next Premium trade in GBPUSD here.

Act Exp Prev GMT
Chicago PMI (AUG)
56.5 64.3 52.6 Aug 29 13:45

Onto Japan CPI, Jobs & NZ Figures

Aug 28, 2014 23:47 | by Adam Button

More US economic data points beat expectations on Thursday but the dollar was sluggish, we look at why. On the day the Australian dollar was the best performer while the euro lagged. Later, yen risks are heightened with a major slate of Japanese data is due.  

The parade of better US economic data continued with GDP but after an initial spike the dollar sagged. First let's look at the data.

GDP rose at a 4.2% annualized pace in the second reading on GDP. The initial reading was 4.0% and the consensus was 3.9%. The caveat to the report was that the market was expecting a higher reading after upward revisions in Tuesday's durable goods orders report.

Still, there was plenty of good news in the GDP data. It showed PCE inflation up 2.2% compared 2.0% expected and capex was revised to 8.4% from 5.5% initially.

Other numbers were also upbeat as pending home sales also rose 3.3% m/m compared to 0.5% expected and the initial jobless claims report was slightly better.

Surely the numbers make it marginally more likely that the Fed hikes rates sooner but here's why the dollar didn't climb. First, it's clear that the positive effects of good news on the US dollar are fading. That says that the 7-week run in USD is a bit tired. Second, the market is no longer satisfied with only good news, it wants a signal from the Fed. Third, we're at the end of the month and the market is thin ahead of a long weekend so profitable dollar longs are being pared.

Looking ahead, the yen is in focus with a major slate of data due. At 2330 GMT, the jobs and CPI reports are due. The CPI ex-food and energy is expected up 2.3% y/y. Twenty minutes later, retail sales for July are expected down 0.2%.

Since Kuroda said the job is only half done, there's a wave of renewed excitement about yen weakness. Poor numbers or low inflation could start to boost USD/JPY. 

Our 3 NZD Premium trades await tonight's NZ data on building permits and consumer confidence. The Japan data will impact our EURJPY trades
Act Exp Prev GMT
National CPI Ex Food, Energy (JUL) (y/y)
2.3% Aug 28 23:30
National CPI Ex-Fresh Food (JUL) (y/y)
3.3% 3.3% Aug 28 23:30
Tokyo CPI (JUL) (y/y)
2.8% Aug 28 23:30
Tokyo CPI ex Food, Energy (JUL) (y/y)
2.1% Aug 28 23:30
Tokyo CPI ex Fresh Food (JUL) (y/y)
2.8% Aug 28 23:30
Eurozone Spanish Flash CPI (y/y)
-0.5% -0.2% -0.3% Aug 28 7:00
Eurozone CPI (AUG) (y/y) [P]
0.3% 0.4% Aug 29 9:00
Eurozone CPI - Core (AUG) (y/y) [P]
0.8% 0.8% Aug 29 9:00
Building Consents (JUL) (m/m)
0.1% 3.5% Aug 28 22:45
GDP Price Index (q/q) [P]
2.2% 2.0% 2.0% Aug 28 12:30
Pending Home Sales Index
105.9 102.5 Aug 28 14:00
Eurozone Consumer Confidence
-10.0 -10.0 -8.4 Aug 28 9:00
Continuing Jobless Claims
2,527K 2,513K 2,502K Aug 28 12:30
Initial Jobless Claims
298K 300K 299K Aug 28 12:30
Jobless Claims 4-Week Avg.
299.75K 301.00K Aug 28 12:30

ECB Speculation Rising, Canadian Dollar Surges

Aug 28, 2014 0:15 | by Adam Button

An ECB sources story sent EUR/USD nearly a half-cent higher in a sign of the increasing focus on the central bank in the week ahead. The loonie was the top performer for the second day while the US dollar lagged. Australian capex and house prices are due later.  

There's no doubt that the short-euro trade is crowded but with Eurozone economic data continuing to disappoint, inflation falling and the potential for QE, there's plenty of justification for the sellers. The intrigue began early in the day when Deutche Bank moved up its forecast for ABS purchases, something they call private QE, to next week's meeting from early January.

The next move came when a report revealed that Blackrock has been hired by the ECB as a consultant for ABS purchases. It's well-known that the ECB is working on preparatory work for purchases but the move indicates increased momentum.

The euro had begun to sag down to 1.3168 in US trading when Reuters headlines crossed saying ECB auction is unlikely next week unless inflation slumps. They cited unnamed sources at the central bank. EUR/USD quickly rallied to 1.3210.

Ultimately, the timing of when the ECB announces QE is less important than if it occurs or not. The market is quickly coming to the conclusion that purchases are inevitable. The Swiss franc has been caught in the crossfire and EUR/CHF sagged to 1.2060 before rebounding 10 pips. The SNB may need to prepare measures of its own to counteract inflows if the ECB begins to print.

The big mover in US trading, however, was the Canadian dollar. Ashraf highlighted the upside for the loonie in some trades last week and yesterday and they quickly bore fruit. USD/CAD toppled down to 1.0836 as the 200-dma, 100-dma and August low gave way in a single push.

We've liked CAD on the crosses because Canadian fundamentals will piggyback on the improvement in the US but there is no clear catalyst at the moment. The BK/Tim Horton's deal by no means signals Canada will be an Ireland-like inversion base. Oil flows often settle near month end and that likely pushed the move on Wednesday.

Looking to the hours ahead, the focus is on the Australian dollar with HIA homes sales due at 2100 GMT and Q2 capex numbers at 0130 GMT. Signs of an investment pickup in Australia would underscore the recent outperformance of AUD on the crosses. 

Today's CAD rally sent our GBPCAD short from Aug 15 to its final target for 190 pips, while yesterday's NZDCAD short is +100 pips in the money.