CHF Rides Again, Silver Wakes to Gold Moves, BOC on Sidelines, Weekly Moves

The franc charged ahead once again on Friday but other forexmoves were relatively small despite another late fall in stocks. The Bank of Canada backed away from prior talk of rate hikes. We also look at weekly charts and the CFTC data on speculative positions. Silver finally wakes to gold's rally & hits $42.90s.

The S&P 500 fell 1.5% to close at 1123 with most of the losses coming late in the session. Late trading in forex was minimal with most of the moves coming around the New York open. The pound trade was particularly jumpy for the second day. GBP was unusually strong yesterday, leading to some bullish talk that was rewarded on Friday by a 130 pip spike above 1.66; but that move was short-lived as the pair retraced all its gains and was the worst performer on the day, closing at 1.6462. As Ashraf has mentioned, talk of US-based HP buying a UK software maker for $10 billion was likely driving the indecisive trade.

CHF was the top gainer on diminished talk of intervention and special policy measures to dampen the currency. USD/JPY fell below 76.00 for a moment but later rebounded and closed near unchanged levels.

CAD was in focus after comments from BOC leader Carney. He downgraded expectations of future hikes by saying the central bank will be prudent with respect to the possible withdrawal of policy stimulus. The July 19 BOC statement said that if events unfold as anticipated, some of the considerable monetary policy stimulus currently in place will be withdrawn.

Re-reading the BOC statement from exactly one month ago, its amazing to see how much has changed. At that point, the BOC was saying the global expansion was proceeding broadly as expected and commodity prices were expected to remain elevated (oil and copper down 10% since then). Today, Carney said he still expects growth to accelerate this half but that external headwinds are now blowing hard.

Weekly Moves

The dollar was broadly softer on the week, with CHF as the lone exception. We noted last Friday that the weekly chart in USD/CHF looked bullish and that proved to be the case as the pair gained 100 pips (after climbing as much as 220 on Wednesday).

- Gold touched a record $1881 before drifting back to a settle at $1852. Given that this was the seventh consecutive week for gains, we are getting a tad nervous about long-term gold longs. Those wishing to establish fresh positions may have a chance to buy on a pullback in the next week. Silver easily outperformed gold on Friday, gaining 4.3% to $42.77/oz.

- EUR/USD gained 110 pips on the week but the weekly chart continues to show a lack of conviction.

- Cable closed at the highest weekly level since May 22.

- Double dojis on the AUD/USD and AUD/CAD charts point to a large near-term move. A catalyst on the negative side may come from instability in Australian politics.

- USD/JPY put in the lowest weekly close ever and looks like it wants to break down. Strong nerves and a tight stop are a requirement in yen pairs as Japan ratchets up its rhetoric. A Japanese newspaper report on Friday suggested the BOJ may ease further.

- The S&P 500 fell 4.7% on the week -- the fourth consecutive weekly decline.

IMM Speculative Positions

Fridays CFTC data showed a small increase in the overall net USD short position to $16B from $15B. The main loser was CAD as net longs were cut to 4K from 23K. The euro was a winner as it rebounded from a net short -8K to +15K. CHF longs nearly doubled while JPY positions increased 12%. Speculators continue to be unimpressed by the pound, it was sold on the week and is the only G10 currency held short against USD at -3K.