Intraday Market Thoughts

Growth + Yield = Gains

by Adam Button
Nov 12, 2014 22:50

The simple equation for dollar gains continued to underpin the currency Wednesday as the low-level bid underscored solid gains. The commodity currencies also put in a strong performance while the pound lagged. A busy session awaits in Asia-Pacific trading.  Monday's Premium trades shorting GBPCAD were strictly  opened ahead of today's crucial UK jobs figures & BoE inflation report. The trades went as planned and 1 of the 2 dropped over 160 pips. The other trade missed the fill by 3 pips. Full trades & charts are in the Premium Insights.

Treasury yields edged up after a dip in early trading and although 2.35% sounds like a pittance it's now more than Germany, Japan, Italy, Spain, Canada and the UK. Combine that with developed-world leading growth and a central bank that's growing more hawkish and there is a compelling case to continue buying dollars.

For the second time this week, newsflow was rather quiet in US trading and once again the 'default' mode of the market was to slowly accumulate dollars. USD/JPY briefly broke 115.00 but rebounded to 115.61 while EUR/USD failed in three attempts at 1.25 and then sagged to 1.2425.

The pound was its own worst enemy following the BOE inflation report and it fell to a 14-month low of 1.5778. Curiously, the market wasn't overly excited about the break of last week's low of 1.5791. There is very little support on the chart.

The commodity complex was able to bounce despite lower commodity and stock prices in what could be interpreted as a good, albeit early sign. The loonie continues to benefit from Friday's excellent jobs report and a vote scheduled for Thursday could be more good news as Senators are likely to vote in favor of the Keystone XL pipeline. That won't force the President to approve it but it's a step in that direction in the six-year ordeal.

Looking ahead, a busy day awaits in Asia-Pacific trading with PPI, machine orders and industrial production on tap. They're unlikely to affect yen trading as the focus is on what Abe might do next. He's likely to win an election and strengthen his mandate but the uncertainty of the vote (if called) could help the yen (hurt USD/JPY) on the headlines.

Act Exp Prev GMT
Industrial Production (SEP) (m/m)
-1.9% Nov 13 4:30
Industrial Production (SEP) (y/y)
-3.3% Nov 13 4:30

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