A huge night on Currencies as the US dollar pushes sharply higher

Finally – after ages of doing nothing and of complacency the worlds biggest macro market – currencies – has awoken from its slumber.

This is important because in these moves you can see evidence, and I get a sense, that the market is starting to wake up to the big changes ahead as the Fed exits QE and moves toward tightening rates and Europe remains weak, Japan is slipping back perhaps as is the UK and Australian growth looks “below trend” at best.

Finally it seems that currency traders are making a clear determination that rates in the US will be heading higher and that the US economy is getting close to a sustainable recovery without need of Fed stimulus.

Last night the US dollar rocketed higher and this morning is trading at 82.31 in US dollar index terms the highest level in around a year.

This morning it is at 103.76 against the Japanese yen, 1.3257 against the Euro, 1.6593 against the pound while the Aussie dollar is so far more resilient than its major peers at 0.9285.

We looked at GBP yesterday so here are a few other charts.

USDJPY is heading to resistance which goes all the way back to 1998!!!

USDJPY is headed higher in time 1.10 at least eventually a lot higher. For the moment though the trendline you can see above goes all the way back to 1998.

1.27ish seems a fair LT bet

I’m looking for a move for the Euro below 1.31 and in time a lot lower.

A move back to 90 cents?

The Aussie hasn’t broken lower yet and even though Glenn Stevens said again yesterday he thinks it will go lower eventually it is just so expensive to short. Perhaps a catalyst for a move to 85 will be an actual Fed tightening.

In the meantime trade the range until it breaks

These moves in currencies are important because with currency moves come asset allocation moves and that is likely to mean bonds and stocks coming under a little pressure. Not today, not tonight but with the FOMC Minutes reinforcing that the Fed is discussing the when not if of raising rates the paradigm that has existed in markets since 2009 is soon going to change.

That’s for the future though and overnight the Dow and S&P were higher. The Dow was up 0.59% to 16,979, the S&P rose 5 to 1,987 while the Nasdaq was essentially flat.

In Europe there was another sign the economy is weak with the release of German July Producer prices which fell 0.1% against expectations of a 0.1% rise. No demand equals no price pressure equals a weak economy. So while the DAX climbed nicely off its lows on the back of US moves it still closed down 0.21% at 9,315. the CAC fell 0.32% while stocks in Milan fell 0.20%. In Madrid shares rose 0.33%.

In the UK the big news was the MPC cut which should that there were 2 dissenters inside the 9 man Bank of England board who think their colleagues are a little too worried about the market impactof raising rates. So the FTSE finished down 0.36% to 6,755.

On the ASX futures overnight the rally continued with the September SPI 200 up another 19 points to 5,625 the highest level since June 2008.

In Asia yesterday shares in Shanghai fell 0.24% to 2240, the Hang Seng was 0.15% higher to 25,160 while the Nikkei was little moved at 15,454.

On commodity markets the crash in iron ore has kicked off again over the past week and September futures fell a massive $1.25 a tonne to $91.00 while Septmeber Newcastle coal finished down 5 cents to $69.65 tonne.

Nymex crude is getting volatile with a big rise of $1.59 a barrel after a similar sized fall the night before. August crude finsihed at $96.40. Gold dipped to $1,288 and silver finished at $19.45 an ounce. Copper surged 7 cents to $3.17 on what looks like a technical move to retest the old uptrend line. On the Ags it was down with corn off 0.83%, wheat down 1.19% whie soybeans rose 0.07%.

On the data front it PMI guesstimate day with the advance estimate of the HSBC and Markit manufacturing PMI’s for August – yes this month which is why its a guesstimate – we’ll see China in our time zone and then Europe tonight and the US later in the evening. Of massive importance is the release in the UK with retail sales.

In the US we have the fed’s symposium at Jackson Hole on and tonight we see jobless claims, Philly Fed and existing home sales data.

Greg McKenna

NB: Please note all references to rates above are approximate

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