Intraday Market Thoughts

Dollar Bulls Getting the Dollar Blues, Busy Day in Asia

by Adam Button
Aug 7, 2013 22:56

The US dollar was looking for a life raft on Wednesday as it continued to the post-NFP slide. The loonie was the only currency that performed worse while JPY made large gains across the board. Australian jobs and the BOJ decision highlight an action-packed session.  We issued a change of bias in our USDJPY stance in today's Premium Insights. But pay close note of the importance to respect the major trendlines, as was seen in late June.  

The pound continued higher in US trading, breaking 1.55 and touching 1.5530 before edging back. As Ashraf explained, the upbeat GBP reaction is all about growth. To put the BOE forecasts in perspective, just one of 48 economists surveyed by Bloomberg sees 1.4% growth this year with the median at 1.0% and the European Commission forecasting 0.6%. It's a similar story for 2014 with the consensus a full percentage point below the BOE's 2.6% forecast.

The question is: How will Carney react if/when growth misses his estimates. That will be a question for another day because for now, the huge bullish candle dominates the cable chart.

The Canadian dollar was hit with a double-dose of bad news as the Ivey PMI and building permits both plunged. The loonie is on shaky footing, especially against the high-flying yen.

One of the factors underpinning the yen (and weighing on the Nikkei) over the past week has been speculation about tax hikes. As we mentioned yesterday, the government appears committed to planned sales tax increases despite the fragile economy.

Now there is talk that the government could switch to 1% incremental increases in the sales tax. This may be a way to ultimately slow the pace of tax hikes while maintaining confidence in the bond market, something that could boost USD/JPY.

In the near-term, however, all eyes are on the BOJ ahead of today's decision. No change in the economic assessment or policy is expected so it could be a dull decision. The risk is that policymakers express some disappointment in the economy and that could spark a USD/JPY rally on stimulus speculation.

The other main event is at 0130 GMT with the Australian July employment report. The consensus estimate is for 6K new jobs and a one tick rise in unemployment to 5.8%. AUD bears are running out of reasons to sell: the RBA is less dovish and China has stabilized. An upbeat  jobs report could spark a squeeze.

Yesterday's GBPUSD technical signal led us to issue fresh longs despite the event risk from the BoE. But the intensity of JPY gains has neutralised GBPJPY. We issued 2 new trades in GBPUSD, USDJPY, CADJPY, while sticking with the existing trades in AUDJPY, AUDUSD, gold and EURUSD. 4 new charts have also been issued to accompany the trades. All details are in the latest Premium Insights.
Act Exp Prev GMT
Ivey PMI (JUL)
45.7 56.6 Aug 07 14:00
Ivey PMI s.a (JUL)
48.4 57.0 55.3 Aug 07 14:00
Building Permits (m/m)
-10.3% -3.0% 5.8% Aug 07 12:30
Employment Change s.a. (JUL)
5,000 10,300 Aug 08 1:30
Fulltime employment (JUL)
-4,400 Aug 08 1:30
Part-time employment (JUL)
14,800 Aug 08 1:30
Unemployment Rate s.a. (JUL)
5.8% 5.7% Aug 08 1:30

Latest IMTs