Intraday Market Thoughts Archives

The rare combination of a decline in the jobless rate to 5.9% and upside surprise in employment creation at 248K turns the dollar rally into an explosif phenomenon in financial markets (in terms of momentum). Our Premium, longs in USDCAD, USDCHF and shorts in NZDJPY are nearing their final targets. Full charts & analysis.

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While the forex world was hanging on every word from Draghi on Thursday another central bank story hit that could have even larger implications. On the day the kiwi and yen were top performers while the pound lagged. The Asia-Pacific calendar is light to end the week as anticipation about non-farm payrolls builds. Both our Premium USDCAD and AUDUSD remain in progress as do our shorts in NZDJPY.

Draghi and the ECB were coy on Thursday. The market was expecting details on bond purchases but officials remained vague. It's increasingly clear that Draghi & Co are relying on the Asset Quality Review and TLTRO rather than new measures.

Euro trading was choppy. Some traders were looking for a hint at sovereign QE and that might have contributed to some euro strength but the broader trend was USD weakness and the market hardly needed a reason to squeeze euro shorts.

As Draghi was speaking, a central bank story with greater implications may have hit. The WSJ reported the BOJ may loosen its timeframe for hitting its 2% inflation target. At this point, traders and BOJ policymakers themselves all knew the target wouldn't be hit but lengthening the timeline sends the signal that the BOJ won't do more any time soon.

At the same time, The BOJ's Amari warned yesterday that excessive yen moves are undesirable in what has to be the first attempt to stall yen weakness in more than a decade. USD/JPY formed a bearish engulfing reversal after a fresh high on Wed and continued lower on Thursday. It's now threatening a bearish engulfing weekly candle – that will be something to watch on Friday.

Otherwise, the build up to NFP is the main event. China remains on holiday. Events to watch are the Chinese non-manufacturing PMI, a speech from Bullard at 0000 GMT.

Let's recall that the euro's 20% decline between summer 2011 and summer 2012 failed to boost inflation due to the far reaching implications of austerity policies and plummeting consumer demand. Any ABS plan from the ECB will need to be accompanied by prolonged euro weakness. Full charts & analysis.

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Will this week's release of fresh lows in Eurozone inflation at 0.2% and evidence of contraction in German and France manufacturing PMIs force the ECB to announce the much-anticipated purchases of asset–backed securities and covered bonds at Thursday's meeting? Charts & analysis

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The Russel2000/SPX500 ratio is down 12% from its March highs, the biggest peak-to-trough decline since Sep-Dec 2008. Full charts & analysis.

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The New Zealand dollar closed at the lowest levels in a year but held above the 2013 lows. The euro was the top performer Monday while the Aussie lagged along with the kiwi dollar. It's a major day for Japanese economic data with reports on jobs, industrial production and retail sales due. 2 new Premium NZD trades have been issued ahead of the upcoming NZ data.

Intervention talk in New Zealand is the major theme in the FX market to start the week. NZD/USD fell as low as 0.7707 in Asia-Pacific trading as the market digested evidence that a deliberate RBNZ attempt is underway to cripple the kiwi.Support at the 2013 low of 0.7689 wasn't seriously challenged and the pair bounced as high as 0.7795 before settling near 0.7765 at the end of US trading.

Politicians have been quick to distance themselves from the moves Prime Minister John Key disavowed any knowledge of intervention and the finance minister said the decision was taken independently at the RBNZ. We find it hard to believe the highest levels of government wouldn't be consulted in any FX intervention and even less believable in this case because Key was formerly an FX trader.

That may indicate Key knows the risks of failure and doesn't want his political life tied to the whims of the FX market, even though he was just re-elected. In any case, the lack of total government commitment is one reason the kiwi could bounce but that phase may not yet have arrived.

Up next the focus shifts northward in the Pacific to Japan – another place where officials would be happy to hasten a currency decline.

They may have additional ammunition after today's round of economic reports. The slate starts with the jobs report at 2330 GMT but that's rarely a market mover in Japan. The riskier reports are 20 minutes later with industrial production and retail trade. Production is expected down 1.1% y/y and retail sales up just 0.1% compared to last year. Soft numbers could rekindle talk of Japanese action.

The narrative in markets is that the ECB is fighting deflation and the Fed is seeing a pickup but the data due Monday will underscore the fine line between US and German CPI. The dollar was the top performer last week while the New Zealand dollar lagged. CFTC data showed falling AUD longs. Premium clients who have taken Thursday's AUDUSD trade are currently seeing +70 pips in the green.

Asia-Pacific trading is relatively light to start the week so the focus will be on German and US inflation data later. German CPI numbers are released regionally and traders have largely priced in the results by the time national numbers are out at 1200 GMT. US numbers are due out 30 minutes later.

The consensus is for German prices to rise 0.8% y/y in Sept and US prices up 1.4% on the core and PCE deflator. Given the Fed has a dual mandate that also focuses on employment, the difference isn't huge.

On Thursday, the Fed's Lockhart warned that prices are 'softening' and if the US dollar continues to strengthen the Fed could conceivably push out rate hikes. Keep a close eye on Monday's data.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -142K vs -137K prior JPY -105K vs -83K prior GBP -1K vs -6K prior AUD +8K vs +22K prior CAD +3K vs +8K prior CHF -14K vs -11K prior NZD +2K vs +1K prior

Yen shorts grew substantially and the final Australian dollar longs were probably squeezed out in the continued declines on Thursday and Friday. The flattening of AUD positions probably signifies that long-term carry trades have mostly exited and that could mean more nuanced trading than the 7-cent one-way fall we've had in the past three weeks.

The yen position grew put it's still not at the point where it's overcrowded. There was also good dip buying last week in a further sign of strength. The downside risks lie in a more protracted period of risk aversion.