USD in Demand at Quarter End

The much awaited private stress test of Spanish banks revealed a EUR 60 bn shortfall. The third quarter wrapped up on Friday with a wave of US dollar buying but it was a rough quarter for the big buck. USD was the worst performer in the past three months, while NZD and CAD led the way. The weekly CFTC data also showed the appetite to sell US dollars. See the latest on Premium Insights below.

Quarter-end flows may have skewed trading on Friday toward US dollar buying but the underlying news continues to point to economic weakness.

Most notably, the Chicago PMI fell to a three year low at 49.7, well below the 52.8 reading expected. The consumption data in the PCE report was in line with expectations but soft income growth ate into the savings rate. Finally, the U Mich consumer sentiment slipped to 78.3 from 79.0.

The much awaited private stress test of Spanish banks revealed a EUR 60 bn shortfall, which was close to expectations. The market also shied away from Spanish debt due to the threat of a downgrade from Moodys which said in August that it would review Spains credit rating by month end.

The regular rumors that Spain would imminently ask for aid also did the rounds.

Asia-Pacific trading may be choppy to start the week as a new quarter gets underway. China is on holiday for the week and Australia is closed for a holiday so the market will be extremely thin.

Weekly CFTC data

The overall US dollar net positioning was the most short since Aug 2011. The dollar lost ground against every currency except CAD, which was pared back from an extreme.

EUR net short 50K compared to -73K last week (best in one year)

JPY net long 21K compared to +15K last week

GBP net long 27K compared to +14K last week

AUD net long 90K compared to +69K last week

CAD net long 105K compared to 112K last week

NZD net long 20K compared to +17K last week

CHF net short 1K compared to -4.5K last week

All data is from the close on Tuesday.

GBPUSD is added to 1 EURJPY and gold as the trades stopped out. 1 AUDUSD and 1 silver hit all targets. Both EURUSD, 1 silver,1 EURJPY, 1 CADJPY are in progress. Direct access to trades, charts and rationale can be found directly in here: http://ashraflaidi.com/products/sub01/access/?a=683 Non subscribers can join here: http://ashraflaidi.com/products/sub01/

-AB