Intraday Market Thoughts

Sandy Dries up Liquidity, BoJ Decision Next

by Adam Button
Oct 29, 2012 22:55

Hurricane Sandy closed stock and bond markets on Monday and slowed FX trading to a crawl. The US dollar was the best performer on modest risk aversion while the pound lagged. The Bank of Japan decision is rife with uncertainty. USDJPY shorts in latest Premium Insights nearing the final target. EURUSD, EURJPY, cable, gold, silver and EURGBP in progress. More below.

Trading was a secondary concern on the US Eastern seaboard with Hurricane Sandy bearing down on a huge part of the Northeast. Flooding already appears to have caused extensive damage in low-lying coastal regions and New York has been essentially shut down.

Stock and bond markets will remain closed on Tuesday but are likely to re-open Wednesday under any conditions in order to facilitate month-end trades. Wednesdays consumer confidence report has been delayed and a speech from the Feds Dudley will be rescheduled.

US-dollar demand at the London fix was the main feature on Monday, boosting USD/JPY to 78.84 and taking cable near 1.6000.

Spain announced the discount provisions for bad bank asset buying and they were steep, sending EUR/USD to a session low of 1.2884.

The lone US data point was the PCE report. Consumer spending rose 0.8% compared to 0.6% expected. This was foreshadowed by the strong consumer element in the GDP report last week. The rise in spending was not accompanied by unexpectedly strong income, so the savings rate declined. Core PCE inflation was in-line with the consensus at +1.7% y/y.

The market turns its attention away from storm coverage to the BOJ, which will announce its latest policy moves at around 0400 GMT.

A number of areas are in focus but the primary question is how much QE will officials add. The consensus is 10 trln yen, which will raise the total to 90T. Last week there was talk of as much as 20T yen but on the weekend there was chatter about less than 10T, which would spark a drop in USD/JPY.

The BOJ is widely expected to lower its inflation forecasts for 2013 and may introduce other creative measures to combat deflation and yen strength.

Overall, we preach caution because trading around BOJ decision can be unorthodox and messy.

USDJPY shorts in latest Premium Insights nearing the final target. EURUSD, EURJPY, cable, gold, silver and EURGBP in progress, while AUDUSD hit all targets and CADJPY stopped out. We added 4 charts on EURUSD and gold to dissect the technical complexities for gold (daily and weekly stochastics and MA confluence) as well as euros intermediate trendline and its shifting behavior relative disappointing IFO & PMIs. For direct access to these Premium trades, please click here: Non subscribers, can click on here to join:



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