Intraday Market Thoughts

No Bernanke Smoking Gun, but Market Looks Ahead

by Adam Button
Sep 3, 2012 0:21

The US dollar slumped after Bernanke walked a fine line in his Jackson Hole speech that leaned toward more easing. The Canadian dollar was the leader on the day after strong GDP numbers while its AUD commodity cousins lagged alongside the buck. Weekly CFTC data showed further shifting away from US dollars. Both of those 2 Premium EURUSD longs hit all targets. 1 remains unfilled. For the latest of Fridays Premium Insights see below, as well as a diary of the more important events over the upcoming 2 weeks.

The market was caught in a whipsaw after Bernanke called the labor market a grave concern and the economic situation far from satisfactory but refrained from an explicit hint at further stimulus.

The US dollar initially rallied approximately 50 pips on most pairs but later fell to session lows. The choppiness continued as analysts failed to agree on whether the speech made it more likely that QE3 is coming on Sept 13.

FX was mixed but the gold and bond markets were definitive. Gold shot to a 5-month high of $1691, gaining $40. US 10-year yields fell 7 basis points to 1.55%.

One caveat from Bernankes speech that argues against further easing was the potential for asset purchases to impair the proper functioning of the market.

The market will likely decide in the coming week with non-farm payrolls, the ISM reports and the ECB meeting among many important events on the calendar. These include the following:

September 6: ECB decision: theres a 20% possibility of reducing the refinancing rate to 0.50%

September 7: US August jobs report: the key in influencing Septembers FOMC decision

September 12: German Constitutional Court Decision on the European Stability Mechanism and EU Fiscal Compact

September 13: FOMC decision: will likely pave the way for an October QE3 in the event of sub-100K non-farm payrolls

The euro's gains were limited late in the day by a downgrade of the Spanish region of Catalonia to junk by S&P. EUR/USD fell to 1.2560 after touching 1.2637.

The volatility was very high in general after Bernanke, with the FX and stock markets unable to make a lasting move. Bonds and gold were more decisive, rallying on expectations for QE3.

The Canadian dollar was boosted by Q2 GDP at 1.8% compared to 1.6% expected. The Chicago PMI was slightly soft while the final University of Michigan consumer sentiment was slightly better than the preliminary reading.

Weekly CFTC Data

The Commitments of Traders report showed a general shift out of US dollars.

EUR net -102K vs -124K prior

JPY net +22K vs +11K prior

GBP net +2K vs +8K prior

AUD net +78K vs +87K prior

CAD net +61K vs +51K prior

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