The Trend Still A Friend?

Long-lived trends have developed in the past two months but they are showing signs of exhaustion. The pound was the top performer last week while the yen lagged. The calendar is quiet to start the week but key data on US inflation is up later.

One thing that stands out about the current market is the duration of yen and Australian dollar weakness. USD/JPY and GBP/JPY have risen for 8 straight weeks while AUD/USD has declined for 9 weeks in a row.

On Friday there were signs of waning appetite to sell the aussie. It gained a half-cent on Friday despite the earlier break below the August cycle lows and it gained despite the strong US GDP report. When a trade doesn't respond to technicals and fundamentals it can be a sign of exhaustion.

On the weekend, Japan's cabinet hiked its fiscal year 2014 forecasts to 1.4% y/y from 1% in August. The CPI forecast, excluding the sales tax increase, is forecast at 1.2%.

Liquidity will drop off dramatically for the remainder of the year. There are no important data releases in Asia or Europe to start the week but North American traders will have some numbers to crunch. At 1330 GMT, the market will have a close eye on the US PCE report, especially inflation readings. The PCE deflator is expected up 0.9% y/y with core prices up 1.2%. At the same time, Canada releases the October GDP report. A confidence vote from the Italian Senate is also a risk.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR +16K vs +9K prior JPY -130K vs -130K prior GBP +18K vs +18K prior AUD -52K vs -46K prior CAD -66K vs -56K prior CHF +12K vs +12K prior

Open interest dropped across the board and as that continues it could provide a boost to the most-heavily shorted currencies.