Intraday Market Thoughts ArchivesDisplaying results for week of Nov 19, 2017
Everything else equal, what's the trade? That's the question we pose as markets drift in a holiday-shortened week. The pound was the top performer while the euro lagged. The RBA meeting minutes are up next. A 2nd EUR trade was issued today with 3 charts & notes as part of the "EUR Tactical Set-up".
German politics will likely remain the major headline-maker in a week with a light economic calendar and with US Congress on break. Merkel and her potential coalition partners have reached an impasse and are talking about a fresh election. The President is attempting to broker a deal and Merkel said she doesn't want to try to govern with a minority.
Expect some twists and turns but none of the potential scenarios are likely to leave a major mark on the euro. Initially, EUR/USD slumped 70 pips on the headlines but it recovered. Later in the day, EURUSD sagged again but that was part of a broader climb in the US dollar boosted by stronger than expected US LEI report.
And that brings us to the quiet trade. Risk assets have benefitted in nearly every environment over the past decade but the best backdrop has been the days with little-to-no news. That was the story on Monday and it's likely to be the same (especially in New York trading) for the rest of the week.That could help to underpin a minor rebound in the yen crosses and a creep higher in Treasury yields.
Expect higher volatility in Asia and Europe. The Aussie could be on the move when the RBA meeting minutes are released at 0030 GMT. Commentary about wages and financial stability is key along with insights about lower inflation projections.
Another event to watch is the 0430 GMT Japanese all industry activity index. It's forecast to fall 0.4% m/m.
|All Industries Activity (m/m)|
|-0.4%||0.1%||Nov 21 4:30|
Sterling and euro are in the news for different reasons with the former gaining on improved prospects of an agreement on the Brexit bill and the latter undergoing volatility in Asian trade after German coalition talks collapsed following the Free Democratic Party's walking out of the exploratory talks. More strikingly is the euro's recovery of all its 70-pip decline in London trade amid the realisation that any delayed would fail to derail the economic recovery in Germany and rest of the Eurozone. A new Premium Insights trade/note on the euro will be issued later today.
Futures positioning showed increasingly vulnerable bets against JPY. USD/JPY opened the week near a one-month low after a slide in Treasury yields and stock markets on Friday. What's troubling is that sentiment was bolstered a day earlier by a positive vote in the US House on tax reform. One way to look at it is that now the good news for tax reform is priced in. It faces a tougher battle in the Senate and it could be more than a month before anything is passed. The market may be reflecting that worry.
Cable also deserves a closer watch. A weekend report in the FT said Theresa May could give the greenlight to increasing the Brexit bill on Monday. That would help to break a deadlock and move the talks forward.
Ultimately, the market is far less concerned with the tab, and far more concerned with the post-Brexit trade deal. If paying €40B or even €60B is what it takes to get something like a free trade deal, then that would count as a major win for the pound. Watch for more headlines Monday.
CFTC Commitments of TradersSpeculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
EUR +85K vs +85K prior GBP -4K vs -9K prior JPY -136K vs -128K prior CHF -28K vs -25K prior CAD +47K vs +51K prior AUD +44K vs +45K prior NZD -12K vs -11K prior
Yen shorts are at the most extreme since the end of 2014 but the market was caught offside by the rally Thursday. Despite all the bets on a climb in USD/JPY, the pair is close to the mid-point of the 2017 range. That's a sign of a vulnerable market.