- Market temperature remains high after last week's ECB shoulder shrug
- GBP may find resolution in today's retail sales data/BoE guidance
- Investors nervously awaiting next week's Fed and BoJ meetings
By John J Hardy
The daily moves in the major currencies have died down a bit over the last couple of sessions, but if feels as if the market temperature remains very high and uncertain after last week’s European Central Bank shoulder shrug, concerns about the Bank of Japan’s intent to step away from suppressing the long end of the yield curve, and the Fed’s relatively hawkish stance is also in evidence. And it remains a long wait until next Thursday’s Bank of Japan and FOMC meetings, where we should see a significant release of pent up energy. Until then, all moves should be taken with a grain of salt.
Today, we’ve got two central bank meetings – a likely boring Swiss National Bank meeting and a more interesting Bank of England meeting, where there are expectations of dovish guidance built into the expectations, meaning a two-way risk in the event the bank signals a more cautious stance than expected or (perhaps more likely) signals a more wait-and-see mode after the UK economy more or less returned to business as usual after the Brexit vote.
Later today we have a rather busy US economic data calendar. The high frequency weekly claims data has historically been one of the better leading indicators on the US labour market and continues to suggest a very robust labor market.
But the retail sales data will likely carry more weight in generating market volatility, and there is some focus on the regional manufacturing surveys after last month's weakness in nearly all US manufacturing surveys.
The USDJPY chart looks like one of the more spring-loaded charts at the moment. A descending triangle formation, is considered a bearish formation, with traders looking for a break to new lows (the 100.00/99.50 area) as the trigger to a resolution significantly lower. Meanwhile, the clear upside resistance levels also provide technical interest for a trigger back higher if the formation fails to resolve lower.
The G-10 rundown
USD – no clear US dollar picture at the moment as the market holds its breath ahead of next week’s FOMC meeting. Would expect resilience and even strength if the selling in asset markets (both equities and bonds) picks up again, though a large move not likely until next week. A number of US data points today could color the odds of the FOMC surprising at next week’s meeting – particularly the Retail Sales report. Tomorrow’s CPI data will also weigh..
EUR – the euro completely adrift here – likely to remain broadly strong if risk appetite weakens again.
JPY – as we look at in the chart below, the range within the descending triangle formation is rapidly shrinking and something will have to give next week around the Sep 21 BoJ/FOMC meetings.
GBP – sterling likely to see the most volatility among major currencies today on the UK Retail Sales. We suspect downside risk in GBPUSD outweighs the upside risk, but tactically we should get a sense of resolution either way today, and the Bank of England could surprise with more cautious language than expected on the prospects for further easing. Note the absurdity that Apple bonds will be among those purchased by the BoE.
CHF – will anything every shake the EURCHF out of its range? We suspect a further rise in yields might do the trick – in the meantime, the SNB today may once again fail to trigger notable interest.
AUD – the next zone in AUDUSD toward 0.7425/0.7375 looks critical as a trigger zone for a more profound weakening in AUDUSD. The jobs data overnight was not encouraging, as the unemployment rate drop was for the wrong reason of a drop in the participation rate and overall payrolls fell.
CAD – CAD drawing the shortest straw as oil prices plunge and we’re not far from the range highs above 1.3250 in USDCAD terms. Pressure to the upside on any further oil price weakening and weak asset markets.
NZD – the kiwi strength in the crosses continues after the GDP number overnight was slightly disappointing, but not relative to the upward revision of prior data, as the year-on-year comparison came in as expected at +3.6%.
SEK – EURSEK remains elevated within the recent range, having failed to confirm the recent bearish reversal - makes 9.6000 look like an upside trigger as SEK may weaken if risk appetite comes under further pressure.
NOK – the NOK hanging in there better than one might have expected given the steep sell-off in oil, but can hardly expect to maintain an even keel if we get a further downdraft in energy prices. Upside pivot zone in EURNOK looks like 9.30/35.
Upcoming Economic Calendar Highlights (all times GMT)
- 0730 – Sweden Aug. Unemployment Rate
- 0730 – Switzerland SNB Libor Target
- 0830 – UK Aug. Retail Sales
- 0900 – Euro Zone Aug. Final CPI
- 1100 – UK BoE Rate Decision
- 1230 – US Aug. Retail Sales
- 1230 – US Weekly Initial Jobless Claims
- 1230 – US Aug PPI
- 1230 – US Sep. Empire Manufacturing
- 1230 – US Sep. Philly Fed
- 1315 – US Aug. Industrial Production and Capacity Utilization
– Edited by Clare MacCarthy
John J Hardy is head of FX strategy at Saxo Bank