The recent rally in global equities is beginning to taper off with a selloff in Asian indexes setting the tone for the European session. Equity linked currencies like the Aussie rose in tandem with the Shanghai highlighting the prevelance of cross-asset correlations in the marketplace. In Australia, GDP data surprised the market to the upside as GDP grew by 0.6% q/q and 0.6% y/y in Q2 against market consensus expectations of .2% q/q and 0.2% y/y. The FOMC minutes should shed light on where the central bank stands regarding their expectations for future monetary policy, but unlikely that the statements will surprise Traders. While a correction is possible, the current lack of volume may hinder any prolonged trends in either direction leaving Traders in a range-bound environment before conditions normalize.
[B]News and Events:
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The recent rally in global equities is beginning to taper off with a selloff in Asian indexes setting the tone for the European session. September has been characteristically known for pullbacks in equity markets, a pattern which may be keeping investor capital sidelined. The Nikkei and Hang Seng fell 2.37% and 1.76% respectively, while the Shanghai displayed some level divergence with a slight gain of 1.16%. Equity linked currencies like the Aussie rose in tandem with the Shanghai highlighting the prevelance of cross-asset correlations in the marketplace. While there are fundamental factors supporting price action in Aud, like better than expected GDP growth, broader risk sentiment continues and volatility remain central factor in overall market activity. Indicators of volatility like the VIX carry strong relationships to equity-linked currencies, we observe a negative correlation of 0.8 between the VIX and the Shanghai which is relative to the Aussie. In Australia, GDP data surprised the market to the upside as GDP grew by 0.6% q/q and 0.6% y/y in Q2 against market consensus expectations of .2% q/q and 0.2% y/y. The better then expected figure clearly gives the RBA room to raise rates and AUD traded higher in response. In the European session, Eurozone GDP contracted 4.7% on an annual basis which was in line with estimates. The EURUSD failed to react to the economic data, due to a lack of conviction by Traders and an already ominous tone surrounding the state of Eurozone. Comments from German Finance Minister Steinbrueck warned of challenges in financing and an extended period of weakness for the German economy before recovery. Many forecasts call for a substantial sell-off in the Euro before year-end with levels as low as 1.30. There is additional economic data among the G10 particularly out of the US, ADP employment figures and FOMC minutes are set to be released. The FOMC minutes should shed light on where the central bank stands regarding their expectations for future monetary policy, but unlikely that the statements will surprise Traders. While a correction is possible, the current lack of volume may hinder any prolonged trends in either direction leaving Traders in a range-bound environment before conditions normalize.
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Today’s Key Issues (time in GMT):[/B]
07:00 NOK Manufacturing PMI, index Aug -51.0 exp
08:00 EUR MFI interest rate statistics publishedJu
08:28 GBP Construction PMI, index Aug 48.0 exp, 47.0 prior
09:00 EUR PPI, % m/m (y/y) Jul -0.6 (-8.5) exp, 0.3 (-6.6) prior
09:00 EUR GDP, % q/qQ2 -0.1 (-4.6) exp, -0.1 (-4.6)“flash” prior
12:15 USD ADP payrolls (chg, k)Aug- 241 exp, -371 prior
12:30 USD Non-farm productivity, % q/q saar (y/y)Q2 F 6.1 (1.8) exp, 6.4 (1.8) P prior
12:30 USD Unit labour cost, % q/q saar (y/y)Q2 F -5.5 (-0.5) exp, -58 (-0.6)p
14:00 USD Factory orders, % m/m (y/y)Jul 1.4 (-23.2) exp, 0.9 (-23.7) prior
15:30 USD Atlanta Fed president Lockhart (FOMC voter) participates in “Lessons of the Financial Crisis” panel
18:00 USD FOMC minutes published
[B]The Risk Today: [/B]
[B]EurUsd:[/B] 1.4380 has once again proved impenetrable and the pair is now wedging itself into a corner along with most of the other pairs. The very last uptrend channel now sits at 1.4160 so expect a bounce off there before the real test of the USD strength within the next 48 hours. A break below 1.4160 signals the start of continued Euro weakness against the US Dollar while a break above 1.4380 and 1.4445 signals a return to an appetite for risk.
[B]GbpUsd:[/B] We discussed the problems facing the Cable bulls yesterday and boy did they have a problem all day. The pair was knocking its head on 1.6381 resistance just as the numbers were released and just shortly after the pair was down 100 pips. By the end of the day it had wiped out 3 days hard work in one swift fall. The short term downtrend remains intact and the visit to 1.5947 remains on course.
[B]UsdJpy:[/B] A second touch on the 3 week downtrend yesterday afternoon was met with renewed pressure as the US equity market started to see some unwinding of long positions. The trend line has moved slightly lower from 93.37 down to 93.00/10 so expect more shorting there. The last of the uptrends now comes in slightly below at 92.30/40 but a clearance of 93.50 would be needed to negate the downtrend.
[B]UsdChf:[/B] The SNB and co. continue to prop the pair up but yesterday they had a helping hand from the risk aversion play as the pair rallied from the horizontal support at 1.0556, through the resistance at 1.0632 and now on its way to the resistance at 1.0707 so there is a clear 100 pips plus in just trading the range of the triangle. Get ready to join the shorts just above at 1.0780, again with sensible risk management.
[B]Resistance and Support:
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By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland