From the Floor: Retreating USDJPY opens 100.0 door
- Dollar weakness opens path for USDJPY to hit 100.0 — Moltke Leth
- Gold boosted but strength entirely down to dollar woes — Hansen
- 'Lukewarm' rally not looking likely to get another leg up — Hansen
- Oil short-covering rally runs out of steam — Hansen
- Sellers looking to push WTI back to $43-44/barrel zone — Hansen
- Noble downgrade but 'very confident' it can rebalance — Boye
- CLICK ON THIS LINK FOR A REPLAY OF OUR MORNING CALL
By Martin O'Rourke
It's been a tough overnight session for the dollar after Friday's retail sales disappointment was exacerbated by a weak Empire Manufacturing Index print Monday.
Dollar was weak across the board (with the exception of beleaguered GBPUSD, of course) failing even to force AUDUSD back after the Reserve Bank of Australia published the minutes of the August 2 meeting that ushered in a 0.25% basis point cut in interest rates.
"There was an initial 10 pips move down in AUDUSD before rebounding back after what was a neutral-to-dovish statement from the RBA and this theme of dollar weakness was general", reports Christoffer Moltke-Leth from Saxo Bank's Singapore hub.
Aussie was able to strong-arm dollar back above the 0.7700 handle, while USDJPY came as low as 100.16 overnight and continues to bubble at beneath the 100.30 zone (100.25 at 0736 GMT) with the emphasis firmly on the downside.
"I think the 100.0 mark is very likely to be tested", says Moltke-Leth. "If that happens, expect the Bank of Japan to make some kind of verbal intervention and it may even follow with actual easing when it meets on September 21".
The recent spate of bad data is raising the prospect of a recession once again in the US and Moltke-Leth points to the Bloomberg US economic surprise index. "The index has turned south in the last month and is very close to negative territory", he says. "Could the US enter recession in the second half of 2016"?
Bloomberg US economic surprise index tilts downwards in the last month:
Gold bulls might be heartened by the latest upswing in the precious metal's fortunes, but they should not get carried away, warns Saxo Bank's head of commodities strategy Ole Hansen, pointing to the dollar's weakness is the fundamental driver.
"It has primarily been the dollar that is doing the heavy lifting but it is potentially not enough to trigger another leg up in the rally", he says. "I'm lukewarm on gold after this initial run".
Hansen points out that while the dollar has depreciated some 1.9% this past month, gold has risen 1.5%, indicating that there is not that much substance to the rally.
"Both on a weekly and a monthly basis, gold has been underperforming given the support it should have garnered from a weaker dollar", says the commodities head. "It could go higher but that depends on more dollar weakness".
Gold was at $1,348/oz at 0750 GMT and needs to break through $1,362/oz for the rally to look towards higher targets.
The Saudi-led verbal intervention that served oil so well these past few days also looks to have run its course. "The short-covering rally in oil ran out of steam overnight", says Hansen. "Despite the noise, I don't think we'll see any actual action [on oil production levels] at the big International Energy Forum meeting in Algeria next month":
"Every time WTI has tried to make a move on the key Fibonacci level at $46.20/barrel, it has been repelled", says Hansen. "Intraday sellers are looking to push WTI back towards the retracement level$43-44/b zone with expectations for tomorrow's EIA stocks report negative".
WTI was at $45.40/b at 0655 GMT.
WTI unable to break the $46.20/b level
It's a troubling time for Singapore's Noble after Moody's overnight downgraded the commodities trader two notches.
"The downgrade was due to liquidity concerns, although Fitch (another credit rating agency) has come out and said that this might only be temporary", says Michael Boye from the fixed income desk in Copenhagen.
"The market already had much of this priced in as it is usually a step or two ahead of the rating agencies but there is some pressure on Noble's price today", says Boye.
"We're still very confident that Noble can improve its balance sheets based on the improvement in commodities prices in general and also on the fact that there has been a clear intention from Noble so far to let shareholders carry the main refinancing burden," he says. "They've been very protective of their credit investors so far".
Still, says Boye, at a yield of 14-15%, this is a high risk bond.
Noble downgraded but not out:
China's Shenzhen Composite Index outperformed overnight as speculation that the link to Hong Kong continues to grow. On a day when the Shanghai Composite Index actually slipped, might the Shenzhen be taking over the SHCOMP's mantle as the prodigal son of indices? Food for thought!
Martin O’Rourke is managing editor at TradingFloor.com
Editor’s note: From the Floor takes advantage of TradingFloor.com's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.