Intraday Market Thoughts Archives

One week before the release of the important August US jobs report and six days before the ECB decision, we issued 1 more short trade in EURUSD, backed by a technical occurrence seen only in 4 occasions since the start creation of EURUSD; Oct 2010, Oct 2011, Feb 2013 and Aug 2013. Forecasts that NFP would have rebounded to 200K should lead to a taper of asset purchases in the event that these materialize.  Draghi is expected to reiterate his forward guidance on keeping rates low for an extended period of time, but may also keep a dovish stance to prevent a run-up in the single currency as was the case in early February. Finally, keep an eye on any further hints/reports regarding President Obama's choice for the next chairman to the Federal Reserve.

Upbeat US GDP numbers boosted the argument for a September taper. The US dollar was the best performer while the Swiss franc lagged. In Japan later, a wave of top-tier data hits including employment and inflation numbers.  

The second reading on US GDP showed 2.5% annualized growth in the second quarter, much stronger than the 1.7% originally reported. The US dollar rallied to the highs of the day after the data. USD/JPY climbed to 98.52, near the long-term downtrend at 98.99.

Some caveats in the data stifled the optimism. Inventory accumulation was responsible for 0.6 percentage points of growth and that will likely take away from Q3 GDP. Corporate profits were also a large boost but companies are using the money to pay larger dividends rather than investing, a choice that's less beneficial for the economy.

The euro was especially weak Thursday on weak German GDP and employment. At one point, the euro decline was the largest since May. After falling to 1.3218, the euro bounced to 1.3238 but was still down nearly a full cent on the day.

Fears surrounding Syrian action continue to fade as the White House highlights a course of action that includes only limited airstrikes. After touching $110, US crude oil fell below $108.

The focus now turns to Japan and its battle against deflation. At 2330 GMT, July national numbers are expected to show prices up 0.7% y/y but down 0.2% excluding food and energy. Lower readings could spark talk about further BOJ stimulus or a rollback in planned tax hikes.

Along with the CPI numbers, Japan will also release employment data but the solid jobs picture in Japan rarely moves FX. Twenty minutes later, July industrial production is expected to rise 3.6% after a 3.1% in June.

Gold is quickly catching up in erasing the damage from late spring-early summer as it completes 2 consecutive monthly rises and is the 2nd best performing commodity so far this quarter, up 14%  (after silver's 20%). Here is how gold fared in September and other months over the last 10 years. Full Chart & Analysis

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Tuesday's fright on Syria turned to sober second thoughts as markets unwound a solid portion of the worries. Carney's speech boosted the pound but the US dollar was the top performer while the yen lagged. For Asia-Pacific traders, the Japanese July retail sales report is the highlight.  

The West continues to take steps toward airstrikes in Syria as Obama arranged meetings with Congressional leaders but yesterday's fear was overdone and the chance of a long campaign or regional spillover may be low.

Yen crosses bounced after deep losses along with stocks and bond yields. The market will remain jittery until the bombs fall and markets get a sense of the Syrian response.

The trading highlight on Wednesday was a speech from BOE Governor Carney as he attempted to clarify his ideas on forward guidance. Traders sold the pound heavily ahead of the comments, knocking cable to 1.5450.

The initial reaction was lower to 1.5425 on headlines saying the BOE would consider more stimulus if financial conditions tightened or the recovery faltered. Almost immediately, however, the focus shifted to more upbeat comments on the economy from Carney and a BOE plan to reduce the amount of liquid assets held by banks. The latter plan could free up 90B pounds for lending.

Cable quickly turned around and hit 1.5550, more than a full cent from the bottom. Carney avoided any meaningful comments in the A&A and the pair drifted sideways to 1.5525.

Looking ahead, Japan releases July retail sales data at 2350 GMT. The consensus call is for a 0.5% decrease in sales after a 3.5% jump in June. A better reading could help to stabilize the Nikkei, which hit a one-month low on Wednesday.

The sound of the beating of the drums of war was a signal to find safety in markets. The traditional flight to the yen was evident in FX while the high yielding kiwi suffered. The Asia-Pacific calendar is light but trading could be busy with market on edge.

Reuters reported that Syrian opposition leaders have been told to prepare for a Western attack as early as the next few days. The UK also recalled parliament to vote on taking action in Syria.

With geopolitical risks markets seek safety and analyse later. That was certainly the case Tuesday as stocks in Europe and the US were routed, bonds rallied and the USD/JPY dropped to 97.00 from 98.50 a day earlier.

In general, moves on geopolitical risk tend to fade but at the moment there are many unanswered questions about the length and severity of any US involvement as well as Russian backing of the Syrian regime.

At the same time, the picture of the global economy remains murky. French joblessness hit an all-time high for the 27th month in a row. US numbers were slightly better with the Richmond Fed at +14 compared to a flat reading expected. The consumer confidence report also hit 81.5 from 79.0 expected. A 3% rise in oil prices, however, could crimp consumer spending.

In the immediate term, the market is focused on 96.90 in USD/JPY, which was the August 20 low. A break could open a path to re-test the summer lows in the pair.

One surprising move in the risk-off scenario is the resilience of the euro. After a fall to 1.3323 in European trading it sharply rebounded to 1.3399. The gains didn't come on any particular headline and underscore this year's theme of euro resilience.

 US 10-year yields are 11% above their 200—week MA, the longest deviation above the MA since 2007. More importantly, it's the longest “uptrend” deviation since 2006. As for Carney's speech tomorrow, it will be a fakeout. Full Charts & Analysis

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Jackson Hole wound down without any game-changing headlines but there were some interesting sub-plots. The Swiss franc is the early-week leader while the loonie lags. Monday's European and Asian calendars are virtually empty and the UK is on holiday to start the week.  The Canadian dollar couldn't catch a lift from upbeat risk sentiment after a dismal retail sales report. The Australian dollar was the best performer while the yen struggled broadly. The Asian session is quiet ahead of UK GDP and Jackson Hole later.

The annual gathering of central bankers in Jackson Hole was less exciting than years past but some debates moved forward.

In Europe, comments from Bank of Cyprus Governor Panicos Demetriades highlighted that the debate on lowering rates isn't over despite Nowotny's assertion on Friday that there is no immediate reason for a rate cut. Demetriades said a cut is still in the cards and he had support from the IMF's Lagarde who said the ECB has room to maneuver.

Greek fin min Stounaras also grabbed headlines saying the country may need 10 billion euros in additional aid. German leaders are refusing to contemplate a third bailout ahead of Sept 22 elections.

A third risk for Europe is the uneasy Italian political situation as Berlusconi's party threatens to bring down parliament if Silvio is expelled from the government.

One Jackson Hole sideline debate was on emerging markets. A paper argued for capital controls as many countries are stuck waging currency battles because of capital flight. The Fed's Lockhart indicated those countries won't get any help from the Fed. We only have a mandate to concern ourselves with the interest of the United States, he said.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR +37K vs +16K prior JPY -72K vs -74K prior GBP -40K vs -47K prior AUD -63K vs -63K prior CAD -10K vs -9K prior NZD +2K vs flat prior CHF +1K vs +2K prior US Dollar Index longs at 12K vs 16K prior

The bigger moves came in commodities as gold longs increased 29% and copper bets doubled.