Intraday Market Thoughts Archives

Yen crosses continued to set fresh highs while US economic data painted a mixed picture. GBP was the top performer while the JPY lagged. Aussie Capex is up next shortly, followed by Japanese retail sales are the top event in the coming hours.

Two main themes in the currency market have developed in the past month 1) yen weakness 2) Australian dollar weakness. They were both on full display Wednesday in what was essentially the final trading day of the month for US markets.

The market didn't get a clear signal from US economic data but it was enough to generally underpin the US dollar. Initial jobless claims, although probably skewed lower by the Veterans Day holiday, were strong at 316K compared to 330K expected. The Chicago PMI was at 63.0 versus the 60.0 consensus.

The main warning sign was in the durable goods report, excluding defense and aircraft orders fell 1.2% compared to a 0.9% forecast rise. It's the third sizeable negative reading in the past four months and sends a poor signal about year end and early 2014.

In any case, the market gravitated to the good news and USD/JPY broke through 102 for the first time since June while EUR/JPY and GBP/JPY hit fresh multi-year highs.

Despite another day of gains in the stock market, the commodity bloc remained under pressure. AUD/USD is in a relentless slump as it hit 0.9068 while USD/CAD broke 1.06.

The pound took out significant support at 1.6270 (the Sept/Oct highs) and hit 1.6325 before eventually settling at 1.6285 in the highest close since 2011.

Other trends that continued Wednesday were oil and gold weakness.

Up later, at 2350 GMT, Japan releases retail sales for October with a 0.8% decline expected. That kind of number will dampen optimism about 2% inflation, which the market has given up on anyway.

Another event on the calendar is 40 minutes later when Australia releases private capital expenditure numbers for the third quarter. Spending is forecast to fall 1.2% in a clear sign of slowing investment.

Finally, at 0130 GMT, China releases October industrial profit data.

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A soft consumer confidence report stalled the US dollar's momentum on Tuesday. The Swiss franc was the top performer while the Aussie continued to languish. Early data in New Zealand showed a better than expected trade deficit.

Consumer confidence planted a seed of doubt in the minds of traders about the strength of US retail sales heading into the holiday blitz. The reading on confidence was 70.4 compared to 72.9 expected and at the lowest level since April.

Earlier in the session, the US dollar was a solid performer with EUR/USD slipping to 1.3520 and cable down to 1.6140. The dollar rose after strong building permits, house price data and an upbeat Richmond Fed but it was wiped out by consumer confidence and EUR/USD eventually rose to 1.3575 and cable to 1.6218.

The euro was especially volatile after MNI, citing ECB sources, said there is no current consensus for action at the December meeting. The sources said that if the economy and inflation don't respond, the ECB will do more. Those headlines were bullish because they imply a wait-and-see approach but they were coupled with confirmation that negative deposit rates have been discussed.

The hints on the ECB and the Fed's data focus leave the market extremely tied to the whims of statistical releases. With the US headed toward a de facto four-day weekend, Wednesday will be chalk full of data including durable goods, jobless claims and the Chicago PMI.

Asian trading started with surprisingly strong export performance from New Zealand and a trade deficit in October of $168m compared to $350m expected. Data is light for the remainder of the session but BOJ board member Shirai delivers a speech and takes questions. He voted against the BOJ's report at the Oct 31 meeting.

Optimism about a deal in Iran didn't last as US pending home sales slipped. The US dollar and NZD were the top performers while sterling lagged. Look for swings in the Nikkei to continue to drive and confirm USD/JPY trades with the calendar quiet.

The trade to start the week was relief on a tentative deal to dissolve Iran's nuclear program but declines in oil and gold slowly faded. Optimism in stocks and yen crosses also faded.

The largest move was in GBP/JPY, a pair that has attracted fast money traders amidst the volatility in the past week after the breakout last week. On Monday, the pair crested at 165.28 then fell 100 pips beginning European trading.

The slump weighed on cable as it fell to 1.6130 from as high as 1.6240 at the start of the week. Helping the move along was a 2.2% decline in pending home sales compared a 1.0% decline expected.

A sub-plot was a comment from SNB Chairman Jordan who raised a sliver of hope of removing the EUR/CHF floor. He said CHF was massively overvalued in 2011 and said he is convinced there was no alternative to the peg. He added that today there is no reason to drop the cap but the lack of strong, definite rhetoric and the past tense could be a signal the floor won't last another year.

The lone item on the calendar is at 0500 GMT with the Japanese small business confidence index. The prior reading was 50.8.

The big moves in yen crosses and other parts of markets last week left a lot for traders to digest. On the week, the Swiss franc was the top performer while the Australian dollar lagged. The new week begins with comments from Kuroda. 

Consider the following as trading gets underway:

• The S&P 500 has gained for 7 consecutive weeks and closed at a record 1804 on Friday
• GBP/JPY opens the week near a four-year high
• GBP/USD posted the highest weekly close in 19 months on Friday
• EUR/JPY opens near a four-year high
• USD/JPY opens near the highest since July

Technically, the yen crosses have broadly broken out but the froth in the equity markets is a worry. This is essentially a three-day week in the US with the Thanksgiving holiday on Friday. The highlights are jobless claims and durable goods orders reports on Wednesday.

To start the week, the ECB's Noyer and BOJ leader Kuroda appear at an event together in Tokyo at 0400 GMT.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR +9K vs +17K prior JPY -112K vs -95K prior GBP -2K vs -10K prior AUD -36K vs -36K prior CAD -16K vs -16K prior NZD +12K vs +10K prior CHF +3K vs +3K prior US Dollar Index longs at 15K vs 14K prior

What jumps out is yen positioning as bets against the Japanese currency grow to the largest in six years. That kind of extreme highlights the risks of the kind of sharp corrections we saw in EUR/JPY last week. Then again, even the un-taper in September did little to deter bets against the yen at the time.