12/06/2009 – The US Dollar turns a corner; gold melts
* The US Dollar turns a corner; gold melts
* JPY to reprise as the FX punching bag
* Four central bank meetings next week
* NFP beats, but buyer beware
* Key data and events to watch next week
The greenback looks to have made a significant reversal as we head into the year-end. The proximate catalyst was a better than expected November jobs report (see below), which saw Fed interest rate expectations move up, but the move was unfolding from earlier in the week as USD/JPY staged a sharp rebound. In a twist to the normal ‘risk on’ reaction, stock markets failed to sustain initial gains and continued to show signs of stalling below recent highs. The failure in shares may stem from multiple causes: the USD rebound may have driven risk positioning out; accelerated rate hike expectations may have damped investor sentiment; year-end profit-taking/position reductions; technical exhaustion as new highs fail, take your pick. But for the USD it was a one-way ticket higher. Full text »
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11/15/2009 – Risk assets and the USD are at a critical juncture
* Risk assets and the USD are at a critical juncture
* US retail sales on the radar
* MPC minutes could bring clarity to the issue of BoE QE
* Cable continues to find buyers on dips\
* Key data and events to watch next week
The risk rally extended gains this past week as optimism over the global recovery beat out concerns that rising unemployment may lead to continued sluggishness. The USD, meanwhile, finished out roughly in the middle of the week’s range after testing near to its recent lows against the EUR and other currencies. The optimists took heart from G20 nations vowing to maintain stimulus efforts until a more solid recovery was underway, while the USD took a drubbing after the IMF told us what we already know, that the USD is being used as a funding currency. Unfortunately for the bulls, the G20′s pledge was largely hollow, as fiscal stimulus efforts in many countries are mostly winding down and initiatives to extend them seem fiscally unavailable. The early week rally in risky assets faltered mid-week, but managed to stage a minor comeback on Friday. In the process, recent highs in the S&P 500 were briefly surpassed, but they held on a weekly closing basis. Similarly in FX, recent USD lows were tested and recent highs in other currencies were tested and briefly surpassed in some cases, only to see the USD recover into the end of the week. Full text »
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11/22/2009 – Risk assets and the USD are at a critical juncture
* Currency markets to remain beholden to the risk trade
* Bullion’s bull-run still intact
* Sterling takes a hammering, focus on 3Q GDP and public finances
* Key data and events to watch next week
The moves this week should convince anyone that had any doubt, that the correlation between equity markets and currencies remains alive and well. It was a rollercoaster, with EUR/USD oscillating between 1.4800 support and 1.5000 resistance for the better part of the week. The S&P 500 meanwhile continued to find interest on either side of the pivotal 1100 level. It seems that EUR/USD 1.50 and the S&P 1100 go hand in hand as both remain extremely challenging technical and psychological levels. Indeed, both have only closed above those crucial levels three times this year – euro in October and stocks just this week. It should not surprise anyone that the correlation between these two since the beginning of the second half of 2009 has been a stellar 92%. Don’t look for much to change on this front anytime soon. Full text »
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11/15/2009 – Risk assets and the USD are at a critical juncture
* Risk assets and the USD are at a critical juncture
* US retail sales on the radar
* MPC minutes could bring clarity to the issue of BoE QE
* Cable continues to find buyers on dips\
* Key data and events to watch next week
The risk rally extended gains this past week as optimism over the global recovery beat out concerns that rising unemployment may lead to continued sluggishness. The USD, meanwhile, finished out roughly in the middle of the week’s range after testing near to its recent lows against the EUR and other currencies. The optimists took heart from G20 nations vowing to maintain stimulus efforts until a more solid recovery was underway, while the USD took a drubbing after the IMF told us what we already know, that the USD is being used as a funding currency. Unfortunately for the bulls, the G20′s pledge was largely hollow, as fiscal stimulus efforts in many countries are mostly winding down and initiatives to extend them seem fiscally unavailable. The early week rally in risky assets faltered mid-week, but managed to stage a minor comeback on Friday. In the process, recent highs in the S&P 500 were briefly surpassed, but they held on a weekly closing basis. Similarly in FX, recent USD lows were tested and recent highs in other currencies were tested and briefly surpassed in some cases, only to see the USD recover into the end of the week. Full text »
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11/08/2009 – Risk assets are levitating a la Wile E. Coyote
* Risk assets are levitating a la Wile E. Coyote
* G20 and Eurozone Fin. Min.’s may lend USD verbal support
* Bank of England set to revise up near-term inflation forecasts
* QE could be phased out by February
* Somber US employment report makes for ominous outlook
* Key data and events to watch next week
News that the US unemployment rate rose to a 26-year high of 10.2% failed to dent risk appetites as seen in stocks, at least in the immediate aftermath on Friday (more on the data below). Commodities, however, did register the pain of rising unemployment and the implicit hit to demand, with the CRB index dropping to its lowest level this month, and now down about 5% from the Oct 21 high. JPY-crosses also responded appropriately to the downbeat labor market news, erasing most of the week’s gains. The USD, however, failed to see much strength overall. In a sense, that’s to be expected after the Fed reaffirmed its commitment to maintain exceptionally low rates for an extended period of time, a decision which was reinforced by the soft jobs news. But there’s also the ‘risk on/risk off’ correlation, and while stocks managed to rebound, the USD remained under pressure. Full text »
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11/01/2009 – USD Risk rally is done
* Risk rally is done
* Fed speculation is misguided
* Earnings still little to write home about
* US unemployment to hit 10% in October
* More QE from the BoE on the cards
* Sterling particularly vulnerable if PMI services disappoints
* ECB could be on the point of reining in enhanced policy measures
* Key data and events to watch next week
Last week’s lead bullet point was that the risk rally had stalled, for the moment. Lacking any solid technical indications of a reversal, we could only highlight potential for an upcoming correction in risk assets. This week, however, we have no such hesitation and a plethora of technical evidence that a multi-week top in the risk rally has been made. Ultimately, this should be USD supportive, given recent high correlations and excessive USD short positioning. However, the real driver of USD weakness is near-zero US rates, which will not be changing anytime soon. In light of that, the USD recovery should not be in a straight line, but rather fraught with continued choppiness. As a result, we will look to buy the USD on dips in the weeks ahead against all but the JPY. The JPY remains the primary funding currency, and barring a collapse in US rates in the weeks ahead, this should remain the case. As such, we will also look to re-sell JPY-crosses (EUR/JPY, AUD/JPY, GBP/JP, etc) on any rebounds, and the JPY-cross decline is likely to be the most pronounced FX outcome of any risk unwind. Lastly, the outlook for gold remains somewhat confused, given the various forces at work. But our preference is to be sellers while it holds below the 1070/75 area, and we will become more bearishly convinced on a daily close below the 1025/27 level, targeting a move lower to 970/980 initially. Full text »
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10/25/2009 – USD still falling, risk still rallying
* Risk rally stalls for the moment
* Sterling set to remain on the defensive
* Earnings still show little organic growth
* Treasury auctions again in focus
* Key data and events to watch next week
Despite the crescendo of USD negativity this past week (e.g. CNBC devoted a full day’s worth of programming to the weak dollar theme), the greenback actually held up pretty well, while the JPY struggled further as the biggest loser. On the week, the USD is better against the JPY, GBP, and CAD, and slightly weaker against AUD, EUR, NZD, CHF, gold and silver. Perhaps interestingly, EUR/USD broke above the psychological resistance level of 1.5000, made little progress and looks set to close just below it for the week. Eurozone finance ministers and ECB President Trichet did their best to talk down EUR/USD, but the market paid little attention. Cable experienced a massive rejection from a break above its Ichimoku cloud on strength early this past week and looks quite vulnerable (see below). CAD went on a roller coaster ride, but ultimately fell against the buck on more strident warnings from the Bank of Canada against further strength. BOC Gov. Carney used the “I” word (intervention) and traders reacted for the time being with further short-covering in USD/CAD. We are cautious that markets will continue to heed the BOC threat, but excessive USD-short positioning there may see further gains toward the 1.09-1.10 area, where we would reconsider selling USD/CAD. The 21-day sma at 1.0550 may be the trigger higher, and a daily close above would be bullish in our view. Full text »
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10/11/2009 – USD still falling, risk still rallying
* Dollar stays weak, but holds key levels
* US retail sales and consumer prices in the crosshairs
* UK CPI may upset cable
* Eurozone sentiment and EUR strength
The financial media was all atwitter over USD weakness this past week, but the buck managed to hang on despite reports of its imminent demise. The greenback got off to a weak start after a less than supportive G7 statement retained the same language on FX as the April communiqué, rather than a more strongly worded vote of confidence. The dollar then took a beating on the back of a report by a prominent UK journalist that secret meetings between mid-East oil producers and Russia, Japan, and France, among others, were held to discuss pricing oil in a basket of currencies, including gold, and not in US dollars. Those reports were later denied by most of the countries mentioned, but the dollar continued to slide, while gold prices surged higher to new all time highs of around 1061/62. USD sentiment remains undeniably bearish, excessively so in our view, but it’s important to note that the USD tested key support levels (EUR/USD key highs at 1.4850/70; USD/JPY 88.00; and US dollar index at 75.80/90) and ultimately held. Full text »
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10/04/2009 – USD still falling, risk still rallying
* Has the risk rally finally turned?
* Weekend event risk–G7 meeting/Irish EU vote-update coming
* EU Referendum could see significant EUR/USD volatility
* Bank of England and ECB previews
* US continues to be plagued by job losses
* Key data and events to watch next week
The short answer to that is a definitive, unequivocal ‘maybe.’ The first day of October saw risk assets take a beating for apparently no good reason. True, weekly US jobless claims rose and the ISM manufacturing index disappointed, but we knew from the Chicago PMI that ISM was likely to be weaker, and the jobless claims was not a major jump. Complicating matters further, we had month/quarter-end to contend with the day before and Sept. NFP the day after Oct. 1. Overall, though, we are left with the impression that October has begun on an inauspicious note for risk appetites and risky assets, such as stocks and commodities. If so, we could see further USD strength and potentially signal a multi-week USD low was seen a few weeks ago. Full text »
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10/18/2009 – USD still falling, risk still rallying
* USD still falling, risk still rallying
* Price action beholden to EPS over next two weeks
* GBP rallies ahead of BOE minutes, 3Q GDP
* EUR strength a topic for Eurozone finance ministers
* Key data and events to watch next week
The greenback lost fresh ground to near 14-month lows, as stocks, commodities and other risk assets continued their ascent, but the JPY emerged as the biggest loser on the week. As suggested in last week’s report, JPY-crosses re-connected with risk appetites and saw some of their biggest gains in months after languishing for the last several weeks while the focus was on dollar weakness. With US Treasury yields sustaining recent gains, the JPY is likely to continue to act as the primary funding currency for risk speculators, perhaps giving the USD some breathing room, if only in USD/JPY. Corporate earnings are likely to remain the key driver (see below), however, and any dollar recovery is only likely on disappointing reports or economic data. Sentiment remains extremely USD negative, and dovish FOMC minutes reinforced concerns over the strength of the US recovery. More importantly for the USD, discussion among Fed officials over extending the size of the Fed’s asset purchases (quantitative easing) added yet another reason to sell dollars. Markets appeared to be expecting the Fed to wind down its asset purchases, so the FOMC discussion came as a surprise. Full text »
