Intraday Market Thoughts Archives

Gold plunged through the 55-day and 100-day moving averages in a damaging day for the bulls. The US dollar was the worst performer once again but was able to hold some important levels. The Asia-Pacific calendar is quiet to wrap up the week.  

Gold fell more than $40 and closed near the lows at $1321 in a near-constant fall. It was the worst day for the precious metal since June 25. Technically, it may have been even worse. The first leg down came on the break of the 100-day moving average at $1356. The fall stalled at the 55-day moving average at $1326 and there was a small bounce but eventually it gave out.  

Even hints of hawkish rhetoric on Syria from the US and signs of sticking points in negotiations did little to support the precious metal. The next support line is the mid-August low of $1316, followed by the 50% retracement of the June-Aug rebound at $1306. Given how easily the moving averages gave out and the likelihood of a taper, it's difficult to be upbeat.

The entire gold move this week has come despite a weak dollar, which is another reason to worry. The dollar bulls had some momentary good news with the initial jobless claims report. Claims at 292K compared to 330K expected were the lowest since 2007 and the dollar jumped 20 pips. But there was a caveat in the report and two states weren't counted, leading to a quick reversal.

The dollar bears jumped on the turnaround, especially in cable and it broke through a sticky zone at 1.5830. Still, the dollar showed some decent signs, for instance cable could climb no higher than 1.5840 and eventually slipped back to 1.5807. EUR/USD was unable to break yesterday's high at 1.3325.

As the market begins to focus on the taper, there is a chance for a dollar bounce. Friday's retail sales report will also be an important factor.

A mystery wave of selling kicked the US dollar while it was already down on Wednesday. We check into some theories on what happened. Early in Asia, the RBNZ promised rate hikes and later, Australian jobs could make for some big moves. 

The pound was easily the best performer after upbeat jobs data while the dollar lagged. The dollar was soft but generally flat heading into US trading. Just before the options cut, EUR/USD jumped to 1.3300 from 1.3265.

There was talk about options activity but sources didn't show any major expiries. Another potential catalyst was the Verizon-Vodafone deal and associated flows. The pound has been exceedingly strong since the buyout and it could have been hedging payouts ahead of today's $49 billion corporate bond deal (the largest ever by far).

Oftentimes later in the day answers emerge but this one will remain a mystery. The bottom line is that the US dollar and yen have been exceedingly weak this month. Risk appetite has improved on Syria, data and emerging markets but the moves have been nearly non-stop since the begging of the month and the risk of a pullback is mounting.

Early in Asia-Pacific trading, the RBNZ boosted NZD/USD by a half-cent with a statement saying rate 'increases will likely be required next year' compared to 'removal of monetary stimulus will likely be needed in the future.' Wheeler went on to lament the strong kiwi but that tactic has been ineffective for months.

The next main event is the Australian employment report. AUD/USD has gained about 4 cents this month but positioning was extremely anti-Aussie so there is still plenty of juice to squeeze from Aussie shorts. We'll be watching to see how the Australian dollar reacts to the news. Expectations are for 10K new jobs and 5.8% unemployment when the numbers are released at 0130 GMT. If the numbers are strong and AUD doesn't rally, be wary of a further fall. If the numbers are weak but the dip is shallow, AUD probably has plenty of room to run.

More declines in UK unemployment lift GBP to 7-month highs. Unlike previous episodes of pronounced strength when the currency was boosted by a general advance in risk-on dynamics (robust market optimism, improved growth in G5 and BRICS) the current phase of sterling rally is primarily driven by UK-specific factors across manufacturing, construction and services sectors. The marked improvement in labour markets fails to have any notable impact on wages but maintains market rates at 2-year highs. See latest Chart & Analysis

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The continued optimism in markets has pushed several trades to technical inflection points. As risk trades rallied again Tuesday, AUD was the best performer and JPY lagged. The Asia-Pacific calendar is light but Obama addresses the US public.

The improvement in Syria is well-documented but roaring emerging markets may be an under-appreciated driver for risk trades. Indian and Indonesian shares rallied nearly 4% on Tuesday and the Shanghai Composite is in the midst of a three-day 5.7% surge.

Improvements in developing countries will eventually have a much larger effect on risk trades like AUD/USD, which closed at the highest since June 17.

EUR/CHF also closed at a two-month high, managing to touch a couple pips above 1.2400.

Another major technical level in focus is 1.5752 in cable. It's represents that June high and the 200-week moving average is also nearby. The pair touched 1.5744 on Tuesday.

Finally, NZD/JPY broke the July high, the 100-day moving average and the 61.8% retracement of the May-June fall.

The synchronicity of the technical moves suggests this could be the start of an extended period of risk appetite but we maintain some skepticism. September is historically a tough month for risk trades and the Fed will come back into focus later in the week, along with a multitude of risks over the coming month.

In the short term, positive sentiment may be overdone with stocks now on a 6-day winning streak and NZD/JPY higher for 7 straight days. In the hours ahead, the market will focus on Obama's speech to the public at 0100 GMT. Signs of war mongering would dampen sentiment.

President Obama will continue to highlight his ability to order a swift strike on Syria without the authorization of Congress in order to establish leverage with Moscow and Damascus. So far this has worked in forcing Russia to table its proposal. But it is a fine line between using leverage to force Syria/Russian to cooperate and forcing the use of force in which case the market consequences will reverse. Full Analysis

It's growing more difficult for the US to strike Syria as the public sours and Russia steps up diplomatic efforts. The Swiss franc was the top performer Monday while the yen lagged in an odd day of trading. In the upcoming session, China releases industrial production data.

Polls of Americans and Congressmen show minimal support for airstrikes on Syria with the first votes set for Wednesday. In the hours ahead Obama will attempt to rally support but whip counts show he's unlikely to find support in the House.

Russia opened a diplomatic window to end the international impasse as it proposed putting Syrian weapons under international control and Syria warmed to the idea. The response from the US State Dept was initially cold but could be a way for Obama to save face and de-escalate the situation.

In any case, fears of a regional spillover are diminishing and Sec of State Kerry said any attack would be 'unbelievably small'. Oil prices faded throughout the day and the US dollar was under pressure.

The pound found the strongest bid as it challenged the 6-month high and the 200-week moving average before backing off. That area will be key in the days ahead.

The Chinese stock market posted its strongest day in weeks on Monday, gaining 3.4% despite mixed trade data. The driver today will be industrial production data at 0530 GMT which is expected up 9.9% y/y after a 9.7% rise in July. Retail sales data are also due but the focus for AUD and risk trades will be on industrial production.

Australia elected a new government to be led by Tony Abbott. USD/JPY gapped higher at the weekly open. The latest CFTC positioning numbers showed traders backpedaling out of euro longs.  In the latest Premium Insights, EURUSD and gold remain in progress.

The Australian election went about as forecast as the Liberal-National Coalition defeated Kevin Rudd's Labor Party. The new government promised to reboot the mining boom as it scraps the carbon and mining taxes. AUD/USD is tepidly stronger in early trading, up a quarter cent to 92.11.

The margin of victory was slightly smaller than expected and although the new government has a majority in the lower house, it faces a difficult battle with independents holding the balance of power in the Senate.

One cautionary number for the Australian bulls was Chinese August imports. They rose only 7.0% compared 11.4% expected. Export numbers were strong at 7.2% vs 5.5% but imports are a better leading indicator.

Finally, Tokyo won the 2020 Olympic bid. The related spending will mean some minor growth on infrastructure but the more powerful effect may be a boost to the Japanese psyche, giving the people a fresh reason to believe in Abenomics.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR +22K vs +40K prior JPY -79K vs -78K prior GBP -43K vs -38K prior AUD -71K vs -71K prior CAD -35K vs -25K prior NZD +1K vs flat prior CHF +1K vs +1K prior US Dollar Index longs at 12K vs 12K prior

The numbers reflect the close on Sept 3, which was the first trading day of the month. There had been steady growth in euro longs but just as the market began to like the euro, it rolled over. Traders have been burned many times on euro longs and were quick to head to the exits, something that likely continued since.

There has also been a rapid shift into beds against the Canadian dollar. Many of those positions are now underwater so be on guard against a squeeze lower in USD/CAD.