Intraday Market Thoughts Archives

Markets continue to confound matters as we see the reaction from Jon Hilsenrath's latest article.  Record highs in US stock markets, 6-year highs in consumer sentiment, 6-year lows in unemployment and 2-year highs in bond yields--the Fed ought to scale down monthly asset purchases, by at least $5 bn this year (even if it is symbolic) to account for the change in fundamentals over the last 6 months (and not the last 6 weeks). Full chart & article here

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A solid US report on durable goods orders barely boosted the dollar while musings from WSJ Fedwatcher Jon Hilsenrath knocked the dollar to the worst levels of the week. US data and The US dollar has been the worst performer in 3 of the 4 sessions this week. Japanese CPI is the major event on the calendar.  

US durable goods orders rose 4.2% in June, soaring past the 1.4% rise expected on strong defense and aircraft orders. Stripping out those volatile components, orders rose 0.7% versus 0.6% expected but upward revisions to the prior number were significant (+2.2% vs +1.1%). Separately, initial jobless claims were at 343K compared to 340K expected.

Despite numbers pointing to better Q3 growth, the US dollar hardly inched higher. Later, the FT reported comments from possible Fed Chairman Larry Summers who said in April “QE in my view is less efficacious for the real economy than most people suppose.”

The Summers report also failed to boost the dollar but later as Hilsenrath said the Fed wouldn't taper in July (obvious) and that Bernanke could insert more-dovish guidance (that would be a surprise), the dollar tanked.

The move was partly driven by technicals as the euro, pound and yen all broke to fresh extremes on the week. The large dollar declines this week have been a puzzle but in a quiet summer market moves can stretch longer than usual.

Coming up later, the Bank of Japan will be closely watching the CPI report. The June national CPI is expected to turn into positive territory, up 0.1% y/y compared to -0.3% in May. The real-time numbers on Tokyo CPI are also a factor, with July CPI expected up 0.2% y/y.

The BOJ has staked everything on beating deflation this time around and signs of progress would be welcome. On the other hand, a soft reading could boost USD/JPY on speculation about more measures. The data will be released at 2330 GMT.

The UK economy grows 0.6% q/q in Q2, posting the first consecutive quarterly positive growth in over 2 years. Communicating the GDP recovery while stressing the need for ample progress ahead as well as playing down the threat from inflation will be the BoE's main message in next week's MPC statement. This will be followed by more "forward guidance” from Carney at next month's inflation report. Full chart & analysis

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The Markit US manufacturing PMI rose to the highest since March, adding to the cloudy picture of US factories. The dollar rebounded after two days as the laggard while AUD was the worst performer. Early in Asia-Pacific trading New Zealand's central bank left rates at 2.50%.  

The Markit PMI is a lower-tier manufacturing indicator but it's gaining clout. It aided the US dollar rebound Wednesday with a reading of 53.2 compared to 52.5 expected. Upbeat new home sales also helped the dollar.

Overall, numbers on US manufacturing are diverging wildly. Tuesday's Richmond Fed crumbled to -11 compared to +7 in the prior months. Meanwhile the Philly Fed has repeatedly beat expectations and is at +19.8 compared to +12.5 previously. The ISM manufacturing index recently touched the lowest since 2009 and new orders tanked in the June Chicago PMI.

The survey of those numbers shows how difficult it is to understand one area of the US economy. The Fed's Beige Book points to an expansion in manufacturing but a strong dollar this year and some of these readings point to the opposite.

On Thursday, durable goods orders could help clarify the trend. In the meantime, the dollar will continue to sway with the whims of economic data.

In Asia-Pacific trading, the RBNZ left rates at 2.50% as was entirely expected. The part of the statement that caught the market off guard was a warning about housing prices and a fresh bias toward higher rates.

“Although removal of monetary stimulus will likely be needed in the future, we expect to keep the OCR unchanged through the end of the year," Governor Wheeler said in a statement.

The market is expecting a rate hike around March but it could now come sooner. NZD/USD shot to 0.7980 after the announcement from 0.7935 beforehand.

Is sterling ready for 2 consecutive positive quarterly gains y/y? GBP traders await Thursday's all important release of Q2 GDP (4:30 ET, 8:30 GMT, 9.30 BST) expected +0.6% q/q from +0.3% q/q and +1.4% y/y from +0.3% y/y. Will the recent rally in GBP content with a figure matching expectations? Or, will the y/y figure has to be above 1.5%? GBPUSD failed the 61.8% retracement for now, but remains underpinned above the confluence of the 55-DMA and 100-DMAs. 30 mins before the release of the UK GDP is the July German IFO survey, each of the 3 components is expected to rise but private economists are cautious with disappointing figures considering recent anecdotal data.  

NZD is the least underperforming performing commodity currency so far this year, losing 3.5% against the US dollar, less than the losses in CAD and AUD. Does that mean the Kiwi is the most likely to recover, or does it have the greater downside? Charts & Analysis here

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The US economy continues to appear on uneven footing after a weak Richmond Fed. The US dollar was the laggard for the second day in a row while CAD was the leader on upbeat retail sales. Top tier data in the upcoming session includes Australian CPI and the private Chinese PMI.

The US dollar attempted to stage a rally after Monday's steep fall but it was unable to find a solid footing. Gains slowly evaporated in Europe and Asia then a soft Richmond Fed gave traders another reason to get out of dollars. The manufacturing indicator fell to -11 compared to +9 expected as new orders collapsed.

One factor that could help the dollar in the day ahead is a late-breaking Washington Post report saying that Larry Summers is the leading candidate to take over from Bernanke according to “conversations with plugged-in sources both inside and outside the process”. They say opinions have hardened in the past 72 hours. As a general rule, anyone but Yellen will be viewed as US dollar positive although Summers is also seen on the dovish side of the spectrum so the impact might be limited.

A decision could come any time between now and October but Obama may wish to limit uncertainty by making an early announcement.

The Canadian dollar broke some significant technical levels after the strongest retail sales report in three years. Sales rose 1.9% compared to 0.4% expected. The strength was broad based but the caveat is that the numbers are from May, so they're dated. After the release, USD/CAD fell through the 55-day moving average, the July lows, the 61.8% retracement of the June-July rally and 1.03. The pair also closed below all those levels.

The Australian dollar was hesitant to break 0.9300 ahead of CPI numbers at 0230 GMT. The Aug 6 RBA decision is close with the OIS market pricing a 65% chance of a cut but this data point will loom large in the debate. Any miss in the headline CPI or the trimmed mean (both expected at 0.5% q/q) will lead to a significant move in AUD/USD.

Fifteen minutes later, the focus shifts to China and the HSBC flash manufacturing PMI. This is one of the few privately gathered data points and a key barometer. The consensus is for a 48.2 reading -- the same as June.

Ashraf's interview with CNBCArabia with English Synopsis Full Interview

A soft US existing home sales added to the continued squeeze on the dollar. The yen was the top performer on Monday while the US dollar lagged. The calendar is blank in Asia-Pacific trading but Chinese and Japanese stocks are always a risk.

As we reported yesterday, US dollar longs were at a six-week high on the CFTC positioning report. The three currencies most likely to be held on the other side of the trade were AUD, JPY and GBP. It comes as no surprise that those were the best performers on Monday as funds scale back exposure in quiet markets ahead of next week's FOMC meeting.

The dollar suffered in Asian and European trading and a final leg of losses hit following a disappointing existing home sales report. The sales pace was 5.08M compared to 5.25M expected. The miss helped EUR/USD break through the July 11 high of 1.3207 to 1.3218 before it closed the day back near 1.3185.

The 55-day moving average was a key figure on a number of charts. Cable broke through in European trading and continued racing higher to 1.5384. USD/CAD also fell below the 55-dma and gold is now within striking distance of the mark, which is at $1341.

Commodities were broadly higher with the exception of US crude. On Tuesday, US Congress will scrutinize Wall Street's involvement in the commodity business and that threatens further volatility, especially in the industrial metals. Copper, aluminum and nickel have been cited as key indicators of global economic health but with revelations about nefarious stockpiling we warn to be cautious about drawing conclusions over the coming weeks.

Soft US existing home sales added to the continued squeeze on the dollar. The yen was the top performer on Monday while the US dollar lagged. The calendar is blank in Asia-Pacific trading but Chinese and Japanese stocks are always a risk.

As we reported yesterday, US dollar longs were at a six-week high on the CFTC positioning report. The three currencies most likely to be held on the other side of the trade were AUD, JPY and GBP. It comes as no surprise that those were the best performers on Monday as funds scale back exposure in quiet markets ahead of next week's FOMC meeting.

The dollar suffered in Asian and European trading and a final leg of losses hit following a disappointing existing home sales report. The sales pace was 5.08M compared to 5.25M expected.The miss helped EUR/USD break through the July 11 high of 1.3207 to 1.3218 before it closed the day back near 1.3185.

The 55-day moving average was a key figure on a number of charts. Cable broke through in European trading and continued racing higher to 1.5384. USD/CAD also fell below the 55-dma and gold is now within striking distance of the mark, which is at $1341.

Commodities were broadly higher with the exception of US crude. On Tuesday, US Congress will scrutinize Wall Street's involvement in the commodity business and that threatens further volatility, especially in the industrial metals. Copper, aluminum and nickel have been cited as key indicators of global economic health but with revelations about nefarious stockpiling we warn to be cautious about drawing conclusions over the coming weeks.

For the first time in 3 years, the premium of Brent oil (North Sea) over West Texas Intermediate (US crude WTI) has fallen below zero. Despite an increase in both oil benchmarks, the more rapid rise in the price of WTI has dragged down the spread to $-0.54, for the first time since February 2010. The aforementioned dynamics are seen to be largely temporary as they reflect the increase in WTI, rather than a decline in Brent. More charts & analysis here

Japanese voters renewed the LDP mandate for daring reforms in Sunday's election. The best performer last week was NZD while JPY lagged. CFTC positioning data showed dollar longs at a six-week high. 

The coalition of Abe's LDP and the New Komeito party secured a majority in the Upper House election. The result was largely expected but was on the high side of projections although it failed to hit the two-thirds majority needed to revise the constitution.

USD/JPY was choppy at the open but reverted to essentially flat near 100.35.

The Australian dollar threatens to steal the spotlight. The local press is reporting that Australia's Treasury is expected to downgrade growth forecasts and increase deficit estimates. The bigger concern may be a surprise Friday announcement that the Fed will review bank participation in the commodities market.

A day later, the New York Times published an expose on how a Goldman-owned factory was manipulating aluminum prices. Congressional hearings on bank activity in commodities are also scheduled to begin Tuesday.

The confluence of events could create confusion and volatility in the commodities market, something that could hurt risk trades and AUD.

Commitments of Traders

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

EUR -37K vs -41K prior JPY -86K vs -80K prior GBP -37K vs -34K prior AUD -71K vs -63K prior CAD -20K vs -24K prior NZD -3K vs -1K prior CHF -4K vs -1K prior US Dollar Index longs at 29K vs 29K prior