Intraday Market Thoughts Archives

Even modestly good news is a reason to buy the US dollar in this market as it roared again Wednesday on US election results and a mixed bag of economic data. The loonie edged out USD as the best performer on a rebound in oil while the Australian dollar lagged badly. The Aussie will remain in focus with jobs numbers due later.  The Premium $AUDUSD short picked 2 months finally hit its final target today at 0.8570 for 340 pips gain.  Both USDCAD Premium trades were filled and in the money, alongside alongside the 2 USDCHF Premium trades as EURCHF nears 1.20. All details of the Premium trades are in the Premium Insights.

Republicans winning control of the US Senate was listed as at least an 8-to-1 likelihood on betting sites and yet it sparked an across-the-board USD rally Wednesday. USD/JPY ran to 114.80 from 113.60 with most of the USD gains coming before New York traders arrived.

The market then turned to the ADP employment report. It showed 230K jobs compared to 220K expected; the prior report was also bumped up by 12K jobs. That wasn't strong enough to keep the momentum going and the dollar edged back.

Later, the ISM non-manufacturing index slipped to a four-month low of 57.1 compared to 58.0 expected. Within the report, however, the employment component rose to a 9-year high and that kept US dollar selling to a minimum.

Oil was volatile. It sank in early trading but rumors of a Saudi pipeline explosion caused a violent round of short covering to $79 in WTI. That lowered USD/CAD to 1.1392 from as high as 1.1466.

The pound was volatile and fell to 1.5969 after the soft UK services PMI but talk of M&A related boosted it all the way back to 1.5998. We emphasize, once again, the strong performance of sterling ex-USD over the past month.

The big loser on the day was the Australian dollar, down 1.5 cents. The moves weren't tied to anything in particular or easily identifiable and came well-after the RBA yesterday.

The Aussie will stay in focus with jobs data due at 0030 GMT. The market is ultra-skeptical of Australian employment data at this point but the consensus is +20K with the unemployment rate ticking to 6.2% from 6.1%. As always, watch the full-time/part-time breakdown.

A surprising report about discord at the ECB boosted the euro Tuesday. The general theme in markets was a retracing some of the USD strength in JPY weakness while oil continued to plummet. The New Zealand jobs report was strong early in Asia-Pacific trading; US midterm elections are up next.  Both new USDCAD Premium traxes were filled and in the money, alongside alongside the 4 AUDUSD and USDCHF Premium  trades. All details of the Premium trades are in the Premium Insights.

A report about discord with Draghi's leadership at the ECB struck almost out of nowhere on Tuesday. Multiple sources in a Reuters story said other members of the governing council are fed up with unilateral statements from Draghi and will confront him at this week's ECB meeting.

The euro rallied on the report. Draghi is seen as a dovish leader and the main quibbles outlined were that he made dovish promises that weren't vetted by the rest of the ECB. Any change would also likely swing power back toward the Bundesbank and that would severely undermine the case for QE.

Overall, however, it's a tough trade because turmoil at the ECB would hurt growth in the Eurozone. If a shock headline hits that Draghi is stepping down it might be wise to avoid euro trading and look to short Eurozone stocks or periphery bonds instead.

An early economic data highlight in Asia-Pac trading was the New Zealand jobs report and it showed unemployment at 5.4% compared to 5.5% expected and immediately boosted the kiwi to 0.7840 from0.7765. New Zealand jobs data is only released every three months so the report can have an outsized impact. Earlier in the day the kiwi fell 20 pips briefly after Fonterra's milk auction fell 0.3%.

The more intriguing story will be the US midterm election. The entire House is up for election but Republicans are expected to easily maintain a majority. The market will be watching the Senate to see if six seats can change hands and give Republicans a majority.

The kneejerk will be to buy US assets if the Republicans win but that trade may be short-lived because policymaking will essentially remain deadlocked.

Alternatively, one trading chip the President may use if the Republicans win is approving the Keystone XL pipeline so the Canadian dollar could end up being the big winner/loser.

The USD/JPY story remains the big story in the FX market as it took out 114 before retracing but it wasn't the only story. The Australian dollar was right at the bottom of the FX pile along with the yen. We explain why today's RBA decision might be completely changed by an extraordinary factor.   As the battle of the remaining economic strengths (US vs Canada) escalate, we issue 2 new trades on USDCAD alongside 2 key charts. These stand alongside the 4 AUDUSD and USDCHF Premium trades.

The US dollar rallied to fresh highs after the ISM manufacturing index hit 59.0 compared to 56.2 expected. It led to a broad rally but it later fizzled with USD/JPY slipping back to 113.92.

The bigger moves in US trading were in the commodity currencies. USD/CAD neared the October high as oil broke down below $80 and Poloz indicated the BOC could leave rates low even after the economy is at full capacity and several other dovish comments. Watch for a break 1.1385, which would mark a fresh high since 2009.

But the spotlight should certainly be on AUD/USD. Technically, a death cross hit yesterday with the 100dma falling below the 200dma. The pair is also nearing the October low of 0.8642.

It's a huge day in Australian markets. Most people are focused on the retail sales and trade balance reports along with the RBA decision. Those are all huge events but they could be overshadowed by a special release at 0030 GMT.

Many traders don't know about this because it was just announced yesterday but the Australian Bureau of Statistics will re-release all the employment reports from Dec to Sept at 0030 GMT with a new seasonal adjustment method. They will also explain what happened with the imbroglio in Aug/Sept and the approach to the October report, which will be released tomorrow (Thus in Australia).

This raises a multitude of questions. The RBA announcement is three hours later at 0330 GMT and there is next-to-know talk about a rate cut but if employment is revised dramatically lower, retail sales are soft and along with yesterday's dismal dwelling starts numbers; there might be a case for a surprise cut.

After the BOJ and the wild volatility elsewhere, we'll leave nothing to chance. Like the BOJ, if there is a dovish surprise, get into AUD shorts ASAP and ride them as long as you can.

It's not over yet; the yen continues to slide in early Asia-Pacific trading. The Australian dollar also opened the week lower after a soft China PMI. Weekly positioning data from the CFTC showed that before the BOJ decision, yen shorts were at the lowest since July.  In last week's Premium trades, both GBPUSD shorts were closed prior to reaching their final targets, attaining a combined  profit of at least 210 pips. NZDJPY shorts were stopped out, while USDCHF longs deepened their gains and AUDUSD remain progress.

USD/JPY added another 60 pips early in the week and touched as high as 112.99. The pair has added nearly 500 pips in the past three days.

Before the BOJ decision, we wrote: That if the BOJ announces more QE “would easily send USD/JPY through 110. If those headlines hit, jump on them and ride them for as long as you can.”

It's been difficult to buy dips in USD/JPY and it may continue to be so. In the Oct 2012 to Feb 2013 rally, the pair gained 1700 pips and there were no retracements of more than 200 pips (and only one above 150 pips).

The other move early in the week was a tumble as low as 0.8733 in AUD/USD from 0.8798 at Friday's close. The decline was the result of China's official manufacturing PMI falling to 50.8 from 51.2 – a five month low.

Worries about China are always in the background and the Chinese Economic Information Daily also reported that about 20% of small lending companies in the country are unprofitable.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -166K vs -159K prior

JPY -67K vs -71K prior

GBP -6K vs -4K prior

AUD -34K vs -32K prior 

CAD -21K vs -22K prior

CHF -20K vs -18K prior

NZD -4K vs -2K prior

 Specs were on the right side of the BOJ trade but not nearly as aggressively as they would have liked to be. At the start of October the net short was -121K and that was nearly halved before the BOJ announcement.