Intraday Market Thoughts Archives

The first point traders will watch in Sunday's German elections is whether eurosceptic party anti-euro Alternative for Germany (AfD) secures the minimum 5% vote required to enter parliament. The 2nd immediate point to watch is whether the current ruling coalition of Angela Merkel's Christian Democratic Union (CDU) and the Christian Social Union (CSU) with the Free Democrats and FDP, will be maintained, or replaced by a Grand coalition of CDU/CSU and the Social Democrats (SPD). See full analysis & likely FX implications

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The Fed has restored the world of unlimited money and that was a signal to get out of yen. JPY fell hard on the day with EUR/JPY rising more than 200 pips to the highest since 2009. Up next is Japanese department store sales.  One year ago this month, the ECB rocked financial markets by announcing its readiness to unleash the OMT. One year later, the Federal Reserve sent global stocks to new record highs by deciding not to taper.

The dollar consolidated some of its losses after the shock announcement from the Fed but the real story was yen weakness. The move from the Fed signaled another round of easy liquidity that could extend well beyond mid-2014 if the US economy continues to muddle along. That's great news for carry trades and the yen remains a cheap funding currency. In addition, hawkish BOJ member Kiuchi opened up to the possibility of further easing.

From a low of 97.75 after the Fed, USD/JPY rose as high as 99.62. EUR/USD broke resistance at the highs of the year and other yen crosses also made formidable gains.

The dollar got some help from upbeat economic data. Initial jobless claims were at 309K compared to 330K expected, although computer problems were likely behind the surprise. The Philly Fed rose to 22.3 compared to 10.0 expected and existing home sales surprised to the upside to the highest since 2007.

Cable was particularly sluggish after weeks of outperformance. UK retail sales delivered the original blow to the pair and it fell further throughout the day to 1.6030. The psychological 1.60 is now back in focus and will act as the near-term pivot point.

Another pair to watch is EUR/CHF as it tests the 200-day moving average at 1.2300. The 200-dma has repeatedly supported this pair recently and the latest test will be a major barometer.

The calendar is typically quiet in the Asia-Pacific to end the week and that's the case today. 

Another thing to watch for is apprehension about the German election. Merkel is losing ground in the latest polls and that could lead to a euro slide heading into the weekend. The lone item on the calendar is August Japanese department store sales at 0530 GMT.

Is Aussie still preferable to the euro, or are matters turning for EURAUD? And since GBP did so well against most currencies, then how will it fare against the rising Aussie? GBPAUD rose 21% since April, but the last 3 weeks were down. Where is the optimal trade? AUDJPY, AUDUSD or AUDCAD? One year ago this month, the ECB rocked financial markets by announcing its readiness to unleash the OMT. One year later, the Federal Reserve sent global stocks to new record highs by deciding not to taper. Our Premium Insights from last night issued 3 hours before the FOMC announcement were longs on EURUSD, GBPUSD and AUDUSD, which hit all targets with the exception of GBPUSD, as it awaits the final target at 1.6195. But both shorts in gold were stopped out.

The Fed delivered the shock of the year with no taper and no clear plans to remove stimulus. The dollar crumbled on the headlines with AUD making the most gains as shorts were squeezed. Markets are closed in China and South Korea for the rest of the week but some BOJ speeches are on the docket as markets digest the dollar rout.  

Bernanke cemented his status as perhaps the most dovish central bank of all time by continuing the Fed's asset purchase program at $85 billion per month and backing away from timelines to end QE and raise rates.

The dollar dove on the FOMC statement and continued to fall in Bernanke's press conference. EUR/USD broke above 1.35, cable soared past 1.61 and AUD/USD climbed above 0.95. Gold was also a massive winner, climbing from below $1300 earlier in the day to $1365.

Combined with the likely appointment of Yellen it will dawn on market participants that QE could be extended longer than anyone believes. The data dependant clause from the Fed now clearly means a substantial improvement in the economy, not muddling along with +160K jobs and 0.3% monthly growth in retail sales.

Bernanke continue to emphasize the drag from US fiscal policy and a breakthrough on that front is the dollar's best bet. Given Congress' track record, that's a longshot.

The calendar is light in the upcoming session but the market will continue to wrangle with the implications of the Fed decision. The BOJ will be displeased with the fall in USD/JPY and comments from BOJ member Kiuchi at 0130 GMT and Kuroda at 0635 GMT will be interesting.

The dollar edged lower on Tuesday as the market weighed the overwhelming likelihood Yellen will take over the Fed. The kiwi was the top performer while USD and JPY lagged. Chinese property prices and Australia's leading index are on the Asia-Pacific calendar.

Consolidation was the theme of US trading. Stocks were upbeat with the S&P 500 gaining 0.4% and that helped USD/JPY to 99.38 but the gains later ebbed and the pair finished the day virtually unchanged at 99.13.

The New Zealand dollar remained stubbornly bid as it broke yesterday's high to 0.8249 – a four month high. Technically, there is very little separating NZD/USD from 0.8575 save for developing overbought conditions and the possibility of a Fed-driven dollar rally.

Wednesday's Fed announcement has the potential to create major waves. The size and composition of the taper are important but forward guidance, forecasts and other signals may be equally critical. We will focus on the broad taper path rather than the headline number. Signals about when the Fed plans to completely end asset purchases are critical. That timeline is currently 'about mid-2014' according to Bernanke but if they vary, that will likely be the main dollar driver.

Looking ahead, there will be some minor events in the hours ahead. Up first at 0020 GMT RBA assistant governor Edey speaks in Sydney. The market is fully expecting the central bank to stay on the sidelines for several months as they wait and see how rate cuts filter through.

At 0030 GMT, Westpac releases its leading index for July. In June, the composite was flat. An hour later, data on August Chinese property prices will be released. Lending risks for China have diminished but real estate remains the major risk for the Chinese economy.

The dollar bleeding stopped in US trading and it made a roughly 50-pip recovery against most currencies. On the day, the Australian dollar was the best performer while the US dollar lagged.  

Larry Summers pulling out of the Fed race continued to dominate and the market began to search for other realistic candidates. Yellen is the overwhelming favorite now but Donald Kohn has emerged as the top challenger. Kohn was the vice president of the Fed until 2010 when he retired. The White House says it will announce a nominee 'in the Fall' which leaves a short timeline if they want to float another name.

The market pushed the dollar to session extremes at the start of US trading but the anti-dollar sentiment quickly ebbed.  Cable touched 1.5963 but traders probably looked at the upcoming calendar and the FOMC decision on Wednesday and decided it wasn't a good time to push it.

Most dollar pairs have re-entered the opening gaps now and that's generally a technical signal for recovery but dollar bulls have been repeatedly burned in the past month.

The calendar didn't provide much impetus: the Empire Fed was at 6.3 compared to 9.2 expected and industrial production was in-line with the +0.4% forecast.

Up next are the minutes of the RBA meeting at 0130 GMT. The consensus is that the easing cycle is over for now and we will look for clues to confirm. AUD bears are weak at the moment and AUD/USD could find it easy to rally on any positive headlines.