Intraday Market Thoughts Archives

GBPUSD has managed to avoid its 8th consecutive weekly decline, something last seen during the 1976 sterling crisis and GBP bulls are focusing on a few chart developments such as a weekly doji candle resting right above the 55-WMA. Picking new longs may make sense, but to up to what point? GBPUSD will undoubtedly be impacted by the upcoming key US releases (ADP, manuf ISM and payrolls), ECB decision and the UK releases , namely the monthly UK PMI trifecta. Further indications on the latest opinion polls ahead of the Sep 18 Scotland referendum should also become a factor as the “Yes” camp is closing in on the “No” camp. Following a month when GBP lost ground against all major 10 currencies, with the exception of EUR, find out our next Premium trade in GBPUSD here.

More US economic data points beat expectations on Thursday but the dollar was sluggish, we look at why. On the day the Australian dollar was the best performer while the euro lagged. Later, yen risks are heightened with a major slate of Japanese data is due.  

The parade of better US economic data continued with GDP but after an initial spike the dollar sagged. First let's look at the data.

GDP rose at a 4.2% annualized pace in the second reading on GDP. The initial reading was 4.0% and the consensus was 3.9%. The caveat to the report was that the market was expecting a higher reading after upward revisions in Tuesday's durable goods orders report.

Still, there was plenty of good news in the GDP data. It showed PCE inflation up 2.2% compared 2.0% expected and capex was revised to 8.4% from 5.5% initially.

Other numbers were also upbeat as pending home sales also rose 3.3% m/m compared to 0.5% expected and the initial jobless claims report was slightly better.

Surely the numbers make it marginally more likely that the Fed hikes rates sooner but here's why the dollar didn't climb. First, it's clear that the positive effects of good news on the US dollar are fading. That says that the 7-week run in USD is a bit tired. Second, the market is no longer satisfied with only good news, it wants a signal from the Fed. Third, we're at the end of the month and the market is thin ahead of a long weekend so profitable dollar longs are being pared.

Looking ahead, the yen is in focus with a major slate of data due. At 2330 GMT, the jobs and CPI reports are due. The CPI ex-food and energy is expected up 2.3% y/y. Twenty minutes later, retail sales for July are expected down 0.2%.

Since Kuroda said the job is only half done, there's a wave of renewed excitement about yen weakness. Poor numbers or low inflation could start to boost USD/JPY. 

An ECB sources story sent EUR/USD nearly a half-cent higher in a sign of the increasing focus on the central bank in the week ahead. The loonie was the top performer for the second day while the US dollar lagged. Australian capex and house prices are due later.  

There's no doubt that the short-euro trade is crowded but with Eurozone economic data continuing to disappoint, inflation falling and the potential for QE, there's plenty of justification for the sellers. The intrigue began early in the day when Deutche Bank moved up its forecast for ABS purchases, something they call private QE, to next week's meeting from early January.

The next move came when a report revealed that Blackrock has been hired by the ECB as a consultant for ABS purchases. It's well-known that the ECB is working on preparatory work for purchases but the move indicates increased momentum.

The euro had begun to sag down to 1.3168 in US trading when Reuters headlines crossed saying ECB auction is unlikely next week unless inflation slumps. They cited unnamed sources at the central bank. EUR/USD quickly rallied to 1.3210.

Ultimately, the timing of when the ECB announces QE is less important than if it occurs or not. The market is quickly coming to the conclusion that purchases are inevitable. The Swiss franc has been caught in the crossfire and EUR/CHF sagged to 1.2060 before rebounding 10 pips. The SNB may need to prepare measures of its own to counteract inflows if the ECB begins to print.

The big mover in US trading, however, was the Canadian dollar. Ashraf highlighted the upside for the loonie in some trades last week and yesterday and they quickly bore fruit. USD/CAD toppled down to 1.0836 as the 200-dma, 100-dma and August low gave way in a single push.

We've liked CAD on the crosses because Canadian fundamentals will piggyback on the improvement in the US but there is no clear catalyst at the moment. The BK/Tim Horton's deal by no means signals Canada will be an Ireland-like inversion base. Oil flows often settle near month end and that likely pushed the move on Wednesday.

Looking to the hours ahead, the focus is on the Australian dollar with HIA homes sales due at 2100 GMT and Q2 capex numbers at 0130 GMT. Signs of an investment pickup in Australia would underscore the recent outperformance of AUD on the crosses. 

Euro lifted on a wire story from unnamed ECB sources that any “action [from next week's ECB policy meeting is] unlikely next week". But watch Friday's Eurozone flash Aug CPI figures. More charts & analysis.

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The largest and longest FX moves are the ones where everyone is looking to buy a dip that never comes, is that's what's a happening with the US dollar? CAD and AUD were the only currencies to outperform the dollar Tuesday while the Swiss franc lagged. The Asia-Pac calendar is light.  

The US dollar has looked like it might dip this week after a six-week rally but more strong data added fuel to the fire.

The main release on the day was durable goods orders and it was the best-ever report with a 22.6% m/m rise but that was heavily skewed by aircraft deals, as we pointed out yesterday. The market was looking at the core component and it fell 0.5% compared to +0.2% expected. But that doesn't tell the whole story, the numbers were actually a bit better than expected when you factor in that the prior was revised to +5.4% from +3.3%.

Clearer readings were from the Richmond Fed and consumer confidence. Both beat expectations and rose to long-term highs.

The US dollar was hesitant to climb at first but eventually gained traction, sending EUR/USD to a fresh low since Sept at 1.3165. Cable is also threatening the weekly low at and trading at 1.6541.

The past 8 trading days have featured one strong US indicator after another and there's an inevitable feeling that Yellen will cave and adopt a more hawkish stance. With so many indicators making highs and the S&P 500 closing above 2000, it's hard to justify ZIRP and QE.

Another currency that could benefit from a pickup in the US is the Canadian dollar. Poloz reiterated a neutral and patient stance on the weekend but if the Fed moves, the BOC won't be far behind. Ashraf talks more about the loonie in his latest comments. 

The Swiss franc and Canadian dollar are near medium-term extremes as the market prepares for what could be the most-volatile durable goods orders report ever. The pound was the top performer Monday while the kiwi lagged. NZ trade and the Japanese services PPI are up next.  In our existing Premium Insights, 1 of our 2 EURAUD shorts hit its final target with 380 pips profit,  while our long AUDNZD long is currently netting 60 pips. The current USDCHF long is now netting 150 pips. GBPUSD and USDJPY were both stopped out. All details are in the Premium Insights.

EUR/CHF is back in focus as the sleepy pair nears the 3-year anniversary of the 1.20 floor. The growing potential for ECB quantitative easing is putting downward pressure on the pair and it fell as low as 1.2070. That's the worse level since January 2013.

The SNB has been out of the market since around that time and now the guessing game about when and where they return will begin. There were rumors of SNB bids at 1.2060 but it's likely the central bank will do all it can to stay out of the market until the 1.2010 zone.

With the ECB potentially printing and deflationary forces in Europe there is justification for weaker euro and intervention could trigger the politicization of the 1.20 floor.

USD/CAD is the other pair flirting with interesting levels. It closed at the highest level since April and is very close to breaking the 1.0986 August high. Beyond that 1.10 is a key level and a break could signal a re-test of 1.1250.

The New Zealand dollar fell Monday on political worries ahead of the Sept 20 election but economic data will be back in focus with trade balance at 2245 GMT. A deficit of NZ$475m expected. The other number to watch is Japan's Corporate Services Price Index at 2350 GMT.

Some real intrigue comes on Tuesday when US durable goods orders are due. July was a record month for Boeing orders and that will spark a huge skew in the headline number. Economist estimates range from +0.5% to +38.1%. Fade any move if it conflicts with the component for capital goods orders non-defense ex-air. The consensus is +0.2% and it aligns much better with the underlying trend in the economy.