Intraday Market Thoughts Archives
Displaying results for week of Jul 23, 2017USD's 200 Week MAs Beckon
Several USD pairs are approaching their 200-week MA for the first time in 3-4 years (EURUSD, AUDUSD, USDCAD, NZDUSD and USDX), suggesting the USD's downleg is either nearing the end, or simply pausing. So what to make of the USD/JPY chart below? Is it time for that cyclical break of the trendline higher, or more donwside lays ahead? We just closed out of our Premium USDJPY short for 160-pip gain at 110.60. A new USD trade was also issued to subscribers ahead of the weekend, supported by 3 charts and a note. More action next week as the Bank of England does its Super Thursday (rate decision, minutes, quarterly inflation report and Carney testimony) and the US jobs data shows the latest on wages/employment.
SNB Catches a Break
Four days of big gains in EUR/CHF have led to a breakout in the pair as markets flash mixed signals on volatility. USD finally bounced Thursday and was the top performer while CHF lagged. US Q2 GDP is due next.
On Thursday, EUR/CHF traded at the best levels since the Swiss National Bank pulled the plug on the 1.20 floor. The pair climbed above 1.1200 in a three day move that's now exceeded 200 pips. In the bigger scheme of things, it's a vocal sign of abating Eurozone worries, in contrast to Draghi's cautious between-the-lines message as the ECB sends subtle hawkish signals.
On Wednesday, minutes before the FOMC headlines hit the wires, the ECB's Nowotny said it's time to reconsider policy because the risk of deflation is gone. He also said it was time to discuss the technical aspects of the end of QE, a subject that is often taboo.
Despite the tentative public statements, a hawkish shift from the ECB is months away at most. It's a different story for the SNB where a shift is a distant prospect. If the global growth story can continue, CHF remains an attractive funding vehicle for carry trades, which should keep it under pressure.
A continued rise in global growthm, however, is no guarantee. Markets briefly hit a round of risk aversion on Thursday NY Lunchtime as the volatility whip hit again in the aftermath of choppy moves in the bond market earlier this week.
Economic data helped to lift the US dollar as several second-tier data points pointed to the potential for an upside surprise in today's first look at Q2 GDP, expected at 2.7% from 1.4%. Personal Consumption Expenditure seen at 2.8% from 1.1%. Several banks raised forecasts by 0.3-0.4 percentage points. That kind of beat would be an opportunity for a further bounce in the dollar. Take note that the advanced GDP figures are incomplete and are subject to 2 subsequent revisions.
| Act | Exp | Prev | GMT |
|---|---|---|---|
| FOMC's Kashkari Speaks | |||
| Jul 28 17:20 | |||
ندوة الثلاثاء قبل المركزي الإنجليزي و تقرير التضخم
سيركز الاستاذ اشرف العايدي على قرار المركزي الانجليزي الحاسم المنتظر يوم الخميس اثر إرتفاع التضخم و احتمالات رفع الفائدة. - انخفاض الفارق بين الأعضاء الذين صوتوا لصالح لرفع الفائدة و الذين صوتوا لصالح عدم تشديد السياسية النقدية يوضح الجدل حول موضوع سحب السيولة. - ما هي إستراتيجيات تداول الاسترليني مقابل الدولار و الين؟ سجل
What Happened to the Dollar
The FOMC statement didn't offer much on Wednesday but it was enough to send the US dollar over the technical cliff. Several major levels broke as the dollar plunged in the aftermath. We look at what's ahead. The USDX charts below are an update from our May 19th analog USDX chart.
The US dollar moves in the aftermath of the FOMC statement look like the kind of thing you would see after a major dovish disappointment but they were more about positioning and technicals than anything from the Fed.
Tweaks to the statement included saying inflation was 'below' target rather than 'somewhat below'; and that the balance sheet runoff will start 'relatively soon' which could mean later than September. With regards to the inflation tweek, it remains to be seen whether the change was simply a mark-to-market reflection or a possible sign of the Fed's plan.
What's more important is what it didn't say. There were none of the hawkish or optimistic notes that many market participants were hoping for, and evidently positioning for. In a binary sense, this decision was either going to be neutral or more hawkish and traders piled into dollar longs in the hopes of a bounce.
It didn't come and the dollar fell by more than a cent. The move got a second wind on technicals as key levels broke. EUR/USD took out its August 2015 high of 1.1714, opening up a foray into the 2014/2015 the 1.20-1.27 zone.
The 1.2461 low in USD/CAD gave way and the pair touched a two-year low. AUD/USD also hit a fresh cycle high and cable is just a few pips away from doing the same.
The CFTC positioning data has repeatedly shown a bias to dollar longs but we're finally seeing cracks in the resolve.
Looking ahead, data comes back into focus. On Thursday, the volatile US durable goods orders are due, followed by Friday's first look at US Q2 GDP. The Fed may have been given an early look at GDP and that could explain the tepid statement. Beyond that the major numbers will be inflation, but July CPI isn't due until Aug 11, so there's plenty of time (scope) for the dollar to continue lower and the 200-week MA on USDX wilbe be the talk of the town.
| Act | Exp | Prev | GMT |
|---|---|---|---|
| Core Durable Goods Orders (m/m) | |||
| 0.4% | 0.3% | Jul 27 12:30 | |
Never Sleep on the Fed
This evening's FOMC decision is being billed as a non-event but that kind of apathy is an elixir for volatility. The healthcare vote in the Senate adds new US dollar risks this week. Market probability of a December rate hike have dropped to 46.5% from 48%. Earlier today, June new home sales rose 0.8% to 610k, slightly below the expected 615k.
The Fed-trade appears to have hit an impasse. The market has seen a multitude of soft inflation and growth numbers while the Fed insists that positive sentiment numbers will result in better times ahead. Time will tell, but in the meantime we will look for preliminary signals. Some came Tuesday with US consumer confidence at 121.1 compared to 116.5 expected. The Richmond Fed was also strong at +14 compared to the +7 consensus. Those numbers are likely to improve the resolve of Fed hawks, who have been rattled by weak numbers this year. That could translate into a more upbeat or confident tone in the economic assessment. The problem with those figures is that they belong to the "soft" data category, as opposed to the "hard" data, such as retail sales, which have contracted over the last 2 months.
The crux of the problem is inflation, whose latest numbers were also weak, helped set the latest round of USD selling. We don't get the sense the Fed wants to extend itself further into a bet on higher prices until the numbers pick up.
So the Fed is widely expected to stay on the sidelines. If there is a surprise, it's more likely to be on the optimistic side, or along the lines of a more detailed mention of the asset sales plan. We think the market could be underestimating that hawkish tilt and the dollar could certainly bounce if it happens.
The other area to keep an eye on is Washington. Senators will now spend the next few days debating healthcare reform after passing a procedural vote. Expect some messy twists and turns leading to an expected vote on Friday. The margin for error is razor thin and that may cap any dollar gains.
| Act | Exp | Prev | GMT |
|---|---|---|---|
| New Home Sales | |||
| 610K | 615K | 605K | Jul 26 14:00 |
Bitcoin & Ethereum Webinar
On Jul 4th webinar, when Bitcoin traded at $2590, I mentioned the technical and fundamental reasons why it would drop below $2000. 12 days later, Bitcoin fell to $1800. Today's price is at $2540, down $400 over the last 2 days despite the BIP91 lockin. Find out why & what's ahead in Monday's webinar.
The Global Petrie Dish
The rising tide of global growth is lifting all boats but there are lessons in how some are recovering better than others. The Aussie is the strongest, while the JPY is the weakest as equity indices enter an obligatory corrective rally ahead of the Fed. Month-to-date, all currencies are up against the dollar, with the loonie on top and GBP at the bottom. The Premium Insights will issue a trade tomorrow ahead of the Fed decision.
In the pre-crisis era there was an economic orthodoxy that virtually every country followed. That order has broken down in the past decade and led to a series of economic experiments and now we're beginning to see the results.
The big surprise of 2017 has been Canada...as it was the surprising outperformer of 2016. The IMF said on Monday Canada will lead G7 countries in growth and that's with commodity prices halved from two years ago. Economists still don't quite believe in how strongly it's grown.
A pessimist would say that unsustainable asset price rises – housing in this case – have juiced consumer spending. A more favourable judgement would be that stimulative government policies boosted growth.
The UK could have been in the same position as Canada but fiscal tightening and Brexit uncertainty undercut some of the growth potential. It's a similar story in Europe where fiscal discipline and pockets of tight bank lending have held back the recovery.
In the US, Washington is incapable of consensus and the gridlock continues but there is always the belief that politicians there will do the right thing…once all the other options have been exhausted.
The two biggest losers in Monday's IMF update were the US and UK. The commonality there is political uncertainty.
The lesson so far this year is that it's tough to pick the winners and losers because it's such a fine line. In generations past, one country would be growing 4% and another 1%. Now, the difference in forecasts between the top G7 country (Canada 2.5%) and laggard (Japan 1.3%) is small but still has big implications in FX.
We could see just how big those implications are if Japan ever turns the corner. The minutes of the June BOJ meeting showed the board has no plans of exiting policy any time soon as long as CPI does not reach 2% despite tightening labour markets.
| Act | Exp | Prev | GMT |
|---|---|---|---|
| CPI (q/q) | |||
| 0.4% | 0.5% | Jul 26 1:30 | |
Euro Faces Hardened Test
European indices are selling off again, not only due to the prospects of invevitable QE tapering from the ECB, but also due to ongoing declines Europe's auto sector due to allegations of price collusion. Daimler-Benz and BMW are down 15% and 11% year-to-date. On Friday, the Premium Insights locked in 345-pt gain in the Dax short trade opened on Monday. A new note had been issued to indicate the next step (when & where).
The euro surged last week and is now less than 50 pips from the August 2015 high. The Swiss franc narrowly beat the euro last week as the top performer while the pound lagged. CFTC positioning showed increasingly-crowded bets against the yen. The euro has been skidding along the lows for more than two years but is now threatening to break out. Large gains in three of the past four weeks has EUR/USD bumping up against 1.1714 and a break would be a foray into the massive void formed by the drop to 1.05 from 1.40 that started in 2014. Here's Ashraf's January piece (when parity forecasts were FX traders' favourite past-time) asserting not only EURUSD would not reach parity, but will hit $1.10.
The latest leg of gains comes as the US dollar struggles economically and politically. The non-stop drama and gridlock in Washington increasingly threaten another round of risk aversion.
Inertia should keep a bid in the euro early in the week but the calendar picks up midweek with the FOMC, some higher-tier US data and German CPI on Friday.
CFTC Commitments of Traders
Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.EUR +91K vs +84K prior GBP -16K vs -24K prior JPY -127K vs -112K prior CHF -4K vs 0K prior CAD +8K vs -9K prior AUD +51K vs +37K prior NZD +36K vs +32K prior
The yen trade is beginning to look saturated, especially when you factor in the carry trade. The positioning is the kind of thing you might see before a squeeze on risk trades.
The Canadian dollar finally flipped to a net long position. That means the squeeze on the shorts is done but there is still plenty of ammunition if longs want to get involved. In AUD and NZD, meanwhile, the trade is starting to get crowded.
