Intraday Market Thoughts Archives

It didn't have the largest impact at first but the most revealing statement from the Draghi's press conference was that the ECB intends to implement the ABS program. The yen was the top performer as problems in the junk bond market mount; the Aussie was the laggard after the employment report. The BOJ decision is due later.  

Expectations were low for the ECB press conference but we learned a few things. The euro initially rallied when Draghi left the inflation outlook unchanged but it later fell for a few reasons. The first was Draghi saying preparations for ABS purchases have been accelerated, the second was a reiteration that the ECB will stay dovish much longer than other major central banks and the third was Draghi saying they're working on the preparations for ABS purchases in the expectations that the ECB will go ahead with them.

Draghi qualified the third factor by saying that no final decision has been taken but to us that rhetoric raises the likelihood of ABS buying to about 80% from about 50%. The turmoil in broad markets and a break from euro selling after the recent decline probably prevented further EUR/USD declines in the near term but won't protect the euro in the months ahead.

What could really send the ECB into panic mode is trouble in broad markets. European stocks have fallen about 10% from the recent highs and German bund yields are down to 1.06%.

In the US, the S&P 500 closed at the lowest since May and 10-year yields finished at the lowest since June 2013. The regular reasons trotted out for the turmoil are geopolitical worries and fear of Fed tightening. But what if it's something else.

Late in the day, fund flow data company Lipper revealed that a record $7.1 billion outflow hit US high-yield bond funds last week. That market is often highlighted as a potential source of strain in markets and a round of fear there could lead to a more-lasting flight to safety 

The yen benefitted from worries in US trading but USD/JPY could not break 102.00. That level will be a key focus as the BOJ gets set to reveal its latest decision. There is no set time but around 0300 GMT is likely. Expect some yen buying if officials don't take some small step toward further measures.

Is today's shake-out in yen crosses a massive catch “down” in FX in line with falling yields? And will stocks continue to lose ground to attain the much anticipated trifecta in stocks-yield-yencrosses? Yields were first to drop back in May, much to the shrugging of stocks which went on to hit new highs, while yen crosses invariably began to struggle. Considering the gradual re-convergence among these three segments, we issue a new Premium Insights trade with 2 new charts. Subscribers have seen our Jul 25 short in EURUSD entry at 1.3495 hits its final target of 1.3340, while our EURJPY shorts from July 10 are currently 100 pips and 155 pips. The USDCHF long entry at 0.8910, targeting the final 0.9120 reached 0.9115, currently on 160 pips. Full access found in the latest Premium charts.

The US dollar index seeks to post its fourth consecutive weekly gain, the biggest streak in over 17 months.  The rally will deserve more attention upon a breach of the 83 level from the current 81.50. Charts & analysis

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The more you look at the fundamentals the more difficult it is to argue against the US dollar. A strong ISM non-manufacturing report added to the case for USD and a round of risk aversion helped. The New Zealand jobs report is the next main event.  

The ISM non-manufacturing index rose to a 41-month high of 58.7 in July, easily beating the 56.3 reading expected. At the same time, factory orders were strong and June durable goods orders were revised to 3.3% from 1.4%.

The data is another piece of evidence that the Fed will tighten rates in the middle of next year. The firmness of the US dollar despite the dovish FOMC statement last week was revealing.

At this point betting on the dollar already feels like a crowded trade but it's tough to make a better case for buying any other currency. Look for US dollar pullbacks to be increasingly shallow, something like the small bounce we saw in AUD/USD this week after an extended decline.

The pound was the top performer Tuesday but it still struggled to sustain gains against USD. The New Zealand dollar was the laggard after a soft milk auction. The kiwi will remain in focus with the Q2 employment report due at 2245 GMT. The consensus is for an improvement in the unemployment rate to 5.8% from 6.0%.

The X-factor in the market right now is the stock market. Twice in trading on Tuesday, the S&P 500 snapped 5+ points lower in moments on no news. Those kinds of moves are rare and illustrate thin liquidity and a lack of conviction. The Dow is now down 1% for the year and a deeper equity correction would have painful repercussions for NZD and AUD. 

Stock market and cable bulls breathed a sign of relief on Monday as both retraced a portion of the recent declines. The Australian dollar was the top performer on position squaring ahead of today's RBA decision while the Swiss franc lagged.  

Relentless selling pressure in cable abated on Monday and the pair bounced 40 pips to 1.6860. Coming into the day, cable had fallen in 12 of the previous 13 sessions and on Friday it fell below the 100-day moving average for the first time in a nearly a year. Monday's bounce is so far little more than a re-test of that key level but it bears watching.

USD/JPY pushed to the downside in early trading as Treasury yields continued to slide. We note that seasonals are negative for USD/JPY in the Aug-Nov period. Ashraf wrote his latest thoughts on the pair earlier today.

The main theme in US trading was the stock market providing a lift for risk assets more broadly. The S&P 500 bounced 14 points after falling by as many as 75 points over the past two weeks. That helped the Australian dollar about 20 pips higher to 0.9330 ahead of the RBA decision.

Expectations are low Stevens delivers his statement at 0430 GMT. The market might have expected a more dovish bent until the Q2 CPI showed some inflation pressures. The OIS market is pricing no chance of a move and no moves in the year ahead.

Any AUD/USD move might come from Stevens' jawbone as he works to push the Aussie lower after it hit a two-month low on Friday. 

Last week, USDJPY completed its 2^nd consecutive weekly rise, the first of such gains in three months. In a matter of three days, the pair broke above its 55, 100 and 200 day moving averages. But for those who give importance to Death and Golden crosses, the pair's 100-day moving average dropped below the 200-DMA for the first time since December 2012. Does this matter? We said previously that MA crosses must be evaluated individually for their track record. Some are revealing, while others are worthless. What about the 10-year yield? It continues to attempt (and fail) to break above its 100-day moving average for the past 7 months. The divergence between stocks and yields may have slowed last week when S&P50 fell and yields rallied but the gap hasn't even been halved, and the S&P500-10-yr Yield ratio remains on the rise. Does that mean both will drop lower, or something new is afoot? We issued a new trading idea & 3 charts on USDJPY on Friday, found in the latest Premium Insights.

Speculative money is pouring into US dollars on anticipation of a long Fed-inspired bull market but there have been many false starts before. The US dollar was the top performer last week despite paring gains on non-farm payrolls; the loonie lagged. The week begins with Australian retail sales.   

Last week was a powerful demonstration of the will of US dollar bulls. The only really good piece of news was GDP and even that report had a few caveats. Later, the GDP report didn't send and clear signal about earlier hikes and non-farm payrolls showed no wage growth.

News is the ultimate measure of strength in a market and this was clear last week. The US dollar jumped on good news and it fell gently on bad news. The market is absolutely convinced that Fed hikes are coming around this time next year or a bit earlier and that theme is consuming markets.

But there are questions. The bond bears made another attempt at pushing rates higher last week but after hitting 2.61% the 10-year yield finished the week at 2.49%, hardly higher than the previous week's close.

What's clear is that it's a delicate time but that the dollar bulls are slowly winning out. That doesn't mean the move will be one-way forever.

The Australian dollar was the laggard last week along with the loonie and the focus remains on AUD with retail sales due at 0030 GMT. The consensus for June sales is a 0.3% rise. AUD/USD traders are on edge after a two month low on Friday and a bad headline could spark a rush to the exits.

Commitments of Traders

• EUR -108K vs -89K prior
• JPY -73K vs -54K prior
• GBP +25K vs +27K prior
• AUD +39K vs +39K prior
• CAD +22K vs +21K prior
• CHF -11K vs -7K prior
• NZD +15K vs +15K prior

The next shoe to drop could be the commodity currencies. They turned in the last two weeks but specs remain on the wrong side. A good portion of those are likely long-term carry trade positions but there's still room for a squeeze.