French Banks Dictate Trade, Aussie Data Next

Rumours and denials about French banks dictated trading on Tuesday. The Canadian dollar rallied alongside oil and the risk rally continued. JPY followed CAD as the market leader while GBP and AUD lagged. Reports on Japanese industrial production, Australia consumer confidence and Australian housing starts are upcoming. Latest Premium trades with 4 charts now up including US crude, gold, silver, Dow-30

French banking rumours were the top news of the session. A WSJ column cited a source saying France’s top banks were cut off from USD funding but this was quickly denied by banking officials and corroborated by MNI. EUR/USD was virtually unchanged on the day but the more positive reports helped to strengthen risk appetite.

Oil was a mover, gaining $1.69 to $89.87 and it traded at a six-week high of $90.52. Gold climbed $23 to $1834. Silver outperformed, gaining 2% to $41.02. The S&P 500 gained 0.9% to 1172.

The rally in commodities benefited the Canadian dollar and USD/CAD fell strongly for the second day. The medium term chart continues to point to USD gains and oil will need to close above $92 to create a sustained buying signal.

GBP was a notable underperformer and closed on the lows as the Bank of England’s Posen continued to drumbeat for further QE. Cable briefly fell below the July low of 1.5780 but a more sustained push lower will be needed to confirm the break.

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US economic data was low level but interesting for the long-term. The August budget deficit hit $134.2B compared to $90.5B for last August and $132B expected. The CBO and White House are now projecting a $1.3T deficit in the year ending Sept. 30, which is just $10B better than the year before.

US census numbers were troubling, albeit dated. In 2010, median household income fell 2.3% and the poverty rate climbed to 15.1% from 14.3%, despite the economy growing 3.3%.

On the day as a whole, there wasn’t much to takeaway. Different markets were sending different signals and none of the signals were strong.

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Asia-Pacific Preview

At 0030 GMT, Westpac will release Australian consumer confidence data. The prior report showed a 3.5% contraction. An hour later, Australian housing starts will look to build on a 3.1% increase in Q1; expectations are for a 2.1% q/q increase.

At 0430 GMT, Japan releases the second report on industrial production for July. Expectations are for no change from the preliminary report showing a 0.6% increase.. The Bank of Japan said last week that production will grow at a moderate pace in the fourth quarter.

Another report to watch will be Indian WPI inflation. The prior reading was 9.22% y/y and a similar figure us expected. Signs of a decelerating inflation will confirm that India is near the end of its rate-hiking cycle. This relates to one of Ashraf’s top themes – that growth in BRIC countries will not be strong enough to push up commodity prices.