Intraday Market Thoughts Archives

US unemployment nears the 7% level deemed by Bernanke to be appropriate for ENDING monthly asset purchases, therefore the latest 7.3% figure suggests a tapering must start this month.  We also discuss the rose of USD during geopoilitical tensions as well as GBP after Russia's latest statements. Full Chart & Analysis

The market didn't even wait for the NFP release to buy dollars after other reports pointed to a solid economy. Several key technical levels broke as the US dollar was the top performer while the Swiss franc lagged. A dearth of economic data in Asia will give the market a chance to consolidate ahead of payrolls.

The ADP jobs report and initial jobless claims were close to expectations and made little impression on markets but a jump in the ISM no n-manufacturing index was a game-changer. The index rose to 58.6 compared to 55.0 expected, the highest since 2011. The employment component also climbed to the highest since February, in a potential precursor to NFP.

The dollar was broadly higher after the day. The bond market took special notice and 10-year US yields rose 10 bps to 2.99%. A break of 3% makes Treasuries especially attractive to Japanese investors who are receiving yields of just 0.78%. Gold also suffered after the data, knocking prices to $1367 from $1395.

The biggest move on the day was a 100-pip fall in EUR/USD during Draghi's press conference. He was unexpectedly dovish and tied it to Fed tapering. The ECB lowered its 2014 growth forecast and said rate cuts were discussed.

Fed tapering threatens to create a virtuous cycle for the dollar. Tapering pushes US rates up and that forces foreign central banks to be dovish. Dislocations in emerging markets result and that also flows into dollars.

Technically, EUR/USD broke the 200-day moving average while USD/JPY broke 100. The moves leave the dollar vulnerable to a disappointing headline from the always-volatile NFP but, ultimately, the Fed has probably seen enough to taper. Even the dovish Kocherlakota said on Thursday that a reduction in Fed bond buying may not mean as much as people might think. It's a signal that the doves won't be fighting hard.

Chatter of a 3rd LTRO with a 5-year maturity is doing the rounds as the ECB must act on rates now that the likelihood for any nation to opt for the Outright Monetary Transactions has become minimal. Full chart & analysis

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The US edged closer to air strikes in Syria with a key vote. The Australian dollar was the best performer while the yen lagged in a classic 'risk-on' trade. The Bank of Japan decision is the focus in the hours ahead.  

Obama is reaching out to Congress to endorse limited air strikes in Syria and the first vote passed on Wednesdays as the Senate Foreign Relations Committee voted 10-7 in favor. Republicans are showing some reluctance to support the President and votes will now move to the House and Senate. Even if they fail, Obama can take action but it could severely undermine the effort.

Yen crosses briefly fell on the vote and gold rallied but both moves were quickly undone. The overall tone in markets was positive for risk trades and the S&P 500 gained 0.8%. It was the third strong day of gains for AUD/JPY which has risen 370 pips this week.

The Bank of Canada statement left all the key points unchanged but there was an unmistakable tone of disappointment in growth, especially in the US. Poloz promised better US growth and resulting investment when he took the job but the statement delayed the timelime, which probably delays BOC rate hikes, maybe even into 2015.

The focus will shift to the US economy for the remainder of the week. On Thursday it's the ADP and ISM non-manufacturing surveys followed by non-farm payrolls Friday.

Before that, the market will look to the Bank of Japan. Sometime after 0300 GMT, the BOJ decision will be released and at 0630 GMT Kuroda will hold a press briefing. The government is likely to endorse a sales tax hike in an Oct 2 decision and that will be part of the BOJ discussion. The main point, however, is the economy and it continues to show promising signs.

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An upbeat US manufacturing report boosted the dollar but the market was hesitant to push its luck. The Australian dollar was the top performer while the yen lagged. The Asia-Pacific calendar features the second reading Aussie Q2 GDP.

The ISM manufacturing index was the first release in a big week of economic data. The survey rose to 55.7 compared to 54.0 in the best reading since mid-2011. The new orders reading also jumped to 63.2 from 58.3 and leaves market watchers puzzled about the direction of investment. Just last week, durable goods orders were extremely disappointing.

In any case, every drop in the bucket makes it more likely the Fed will taper on Sept 18 and that's good news for the US dollar, which kicked higher after the numbers. The moves were limited by technical levels as USD/JPY stalled ahead of 100 and EUR/USD found buyers ahead of the 200-day moving average. Both pairs were somewhat stretched after substantial moves than began last week.

If the data continues to point in the same direction, look for those levels to break but Tuesday's reaction shows the market is growing hesitant to buy dollars ahead of the Fed, or at least Friday's non-farm payrolls report.

Gold was also in the spotlight as it rebounded from $1385 to $1415. As we have frequently highlighted, September is the best month for gold, historically. Fund buying was the likely culprit for the gains.

The focus now shifts to the Australian dollar. The neutral bias in the RBA decision gave the Aussie a boost and today's GDP numbers are likely an afterthought but still worth watching. They will be released at 0130 GMT and are expected to show 2.4% annualized growth in Q2.

US holiday trading was light but a long weekend of rest was just the tonic ahead of a big month. The Australian and New Zealand dollars were the top performer while yen lagged. The Aussie will stay in the spotlight with the RBA meeting on the schedule.

In one week, a US-led attack on Syria has gone from a near-certainty to a question mark and the scope of any operation has diminished. The change in tone over the weekend led to better sentiment in markets and risk trades benefitted.

Syria will continue to be a top priority for the markets but other concerns are climbing the agenda. Up first is the RBA decision today at 0430 GMT. The market is pricing in less than a 5% chance of a rate cut but the clues toward what officials will do next are critical.

Before the announcement the Australian dollar could also react to current account data for Q2 and July retail sales.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR +40K vs +37K prior JPY -78K vs -72K prior GBP -38K vs -40K prior AUD -71K vs -63K prior CAD -25K vs -10K prior NZD +1K vs flat prior CHF +1K vs +1K prior US Dollar Index longs at 12K vs 12K prior

These numbers are worth remembering heading into what will surely be a very volatile month. The latest shift is an increase in bets against the Canadian dollar.

UK August manufacturing PMI hit a 30-month high at 57.2, marking the 5^th monthly rise, an improving streak not seen since 1994. The 57.2 figure exceeds all other major economies' services PMIs, which currently stand at 55.4, 51.8, 51.4 and 51.0 for the US, Germany, Eurozone (composite) and China.  The same story applies for services PMI. Full charts & analysis

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