Mixed US data churns the USD picture. JPY crosses under pressure again as end of September approaches.
GBPUSD has a peek below 1.6000 for the first time since June.
Economic Data Highlights
- New Zealand Trade Balance fell to -725M vs. -329M expected and -175M in Jul.
- Japan Aug. Corporate Service Prices fell -3.5% as expected
- Germany Oct. GfK Consumer Confidence rose to 4.3 vs. 3.8 in Sep.
- Japan Aug. Convenience Store Sales fell -5.5% YoY vs. -7.5% in Jul.
- Sweden Aug. Trade Balance out at 6.1B vs. 1.0B expected and 9.1B in Jul.
- Sweden Aug. Household Lending rose 8.0% YoY vs. 7.9% in Jul.
- US Aug. Durable Goods Orders fell -2.4% MoM and were 0.0% MoM ex Transportation, vs. +0.4%/+1.0% expected
- US Final Sep. University of Michigan Confidence rose to 73.5 vs. 70.5 expected and 70.2 originally
- US Aug. New Home Sales out at 429k vs. 440k expected and 426k in Jul.
Upcoming Economic Calendar Highlights
- EuroZone ECB's Orphanides to Speak (1515)
- Switzerland SNB's Hildebrand to Speak (1645)
- US Fed's Warsh to Speak (1715)
- Australia RBA's Stevens to Speak to Senate (Sun 2315)
Market Comments
The USD looked a bit shaky again in the European session after a spike high in Asia, but got back on the rally track after a much worse than expected Durable Goods Orders data point (and then weakened again after the other US data....more below). Risk aversion is still the order of the day and the chief driver of the greenback. Still, the move in risk aversion looks fairly modest if we look over at the stock market at about -2% from the highest close for the cycle in the S&P500 last week to the close yesterday. It's just that we have become so accustomed to ever-upward action that any sell-off feels like a near-panic. Gold showed much less life than the USD bears overnight, only inching up toward 1000 dollars before dumping below 990 briefly as we write this. If we are right that gold has become a sentiment barometer for the dollar, than we should keep one eye on this market and that 1000-dollar mark.
The oil market sell-off is very deep indeed - far outpacing any decline that would have anything to do with this modest consolidation in risk appetite/USD strength. It appears there is an output gap in the oil market as well - a bit at odds with the global recovery story. This is pressuring USDCAD perhaps the most of the USD crosses for good reason. It's still a long way before we can talk about this move as anything other than a consolidation of the weak USD move, though it could have more legs in the near term. The big areas we concentrate on are 1.4450 in EURUSD and 0.8480 in AUDUSD.
The New Zealand Trade Balance picture is an inversion of the trajectory of the global economy over the last year. As growth (and consumption) collapsed, imports into New Zealand also fell sharply and the country managed its largest absolute trade surpluses despite following commodity prices in key export industries. Now, with the economy seemingly on the track to recovery (but with its export prices still rather depressed), the increase in consumption is seeing the trade surplus turning into a trade deficit again - all at a time when global speculation is sending the "high yielders" like the NZD to new highs. This is extremely unhelpful for the kiwi economy and feeds into terrible choices for the New Zealand government: raise rates to slow domestic consumption and foreigners come swooping in to buy up your high yielding currency, keep rates low and you risk inflating new domestic asset bubbles. A currency can be a very troublesome thing. This is why so many countries peg their currencies to other currencies - though that can create yet another set of problems. The only thing that will take the pressure off the kiwi is weaker risk appetite.
The Yen snapped back to life overnight across the board, as the USDJPY rally yesterday seemed merely to be a sign of across the board USD strength (and besides, most JPY crosses ended the day lower...). This did some serious damage to JPY crosses like EURJPY and AUDJPY, and USDJPY looks like it wants to have a go at that critical 90.00 level, though rumors are swirling of endless bids in that area. Bonds have been in no-man's land for some time now between 3.25% and 3.50% if we look at the US 10-year benchmark, and for JPY crosses to either get a sell-off going in earnest or the opposite, we will need to see a break of that range.
The G20 comments are too boring to comment on so far, with promises to keep stimulus in place, and a 5% shift in voting rights in the IMF to formerly "under-represented" countries. The US said that the G20 will replace the anachronistic G7/8 as the main economic forum, a move that makes sense with the shifting balances in the global economy, though with so many participants, it is close to being as unwieldy as the UN in terms of ever accomplishing anything. One wonders if the G7/8 will simply fade away now (and whether anyone will care....?)
As we are polishing this publication off, the University of Michigan Confidence is out at the highest level since early 2008 and much better than the initial September reading. This seems to be gaining more attention than the disappointment in New Home Sales and stocks are rallying and of course the USD selling off a bit again. Is the consolidation already over with?
Chart: EURUSD
The consolidation stopped around the near term support down just above 1.4600, and a small resurgence in risk appetite is pushing things back higher here. The consolidation story needs for this 1.4725 tactical area to hold as resistance, otherwise we are creating a new higher range for the moment in EURUSD and will have to put the consolidation story on hold.