Mean Reversion on the Menu, Carney Coy

Tuesday's fright on Syria turned to sober second thoughts as markets unwound a solid portion of the worries. Carney's speech boosted the pound but the US dollar was the top performer while the yen lagged. For Asia-Pacific traders, the Japanese July retail sales report is the highlight.  

The West continues to take steps toward airstrikes in Syria as Obama arranged meetings with Congressional leaders but yesterday's fear was overdone and the chance of a long campaign or regional spillover may be low.

Yen crosses bounced after deep losses along with stocks and bond yields. The market will remain jittery until the bombs fall and markets get a sense of the Syrian response.

The trading highlight on Wednesday was a speech from BOE Governor Carney as he attempted to clarify his ideas on forward guidance. Traders sold the pound heavily ahead of the comments, knocking cable to 1.5450.

The initial reaction was lower to 1.5425 on headlines saying the BOE would consider more stimulus if financial conditions tightened or the recovery faltered. Almost immediately, however, the focus shifted to more upbeat comments on the economy from Carney and a BOE plan to reduce the amount of liquid assets held by banks. The latter plan could free up 90B pounds for lending.

Cable quickly turned around and hit 1.5550, more than a full cent from the bottom. Carney avoided any meaningful comments in the A&A and the pair drifted sideways to 1.5525.

Looking ahead, Japan releases July retail sales data at 2350 GMT. The consensus call is for a 0.5% decrease in sales after a 3.5% jump in June. A better reading could help to stabilize the Nikkei, which hit a one-month low on Wednesday.