Apologies to all for not posting on Friday, work got in the way. It was quite fortunate I didn’t post as the market continues to move contrary to my expectations. The EUR continued to show strength, the NZD whipsawed wildly, the USD continued to lose pace across the board, and only the GBP behaved as expected bouncing off the 1.68 level. There was really no surprising news on Friday, UoM Confidence surprised and EUR inflation was low and in-line with expectations.
Next week we have:
Monday - USD Advance Retail Sales, CNY Foreign Direct Investment
Tuesday - RBA minutes, JPY Machine Tool orders, GBP CPI, EUR German ZEW Survey, USD CPI, NZD CPI
Wednesday - CNY GDP & IP, GBP Unemployment, EUR CPI, USD Housing Starts, CAD Rate Decision, Yellen Speech
Thursday - Kuroda Speech, JPY Consumer Confidnce, CAD CPI, USD Intial Jobless Claims
Friday - Nothing.
USD: The USD’s weakness has continued to confound traders. Fed rhetoric has been very dovish and it is clear that the market does not expect the Fed to meet the timetable for rate hikes currently set. If 5yr USTs were to sell-off a bit then we might get some interest in a higher USD but so far USTs have been pretty well bid limiting capital flows into the U.S. Of course, the USDJPY has also been a disaster and has sold off hard with the U.S. stock market.
The news flow is heaviest this week for the USD which makes me quite hopeful that we will see USD buying. I am long USDJPY with a tight stop and have bought some more at this level due to support around the 101 level. The U.S. stock market really appears to be in the driving seat here and I really have no idea what could happen. More broadly, I am not inclined to take up long positions in the USD. EURUSD looks like a great long-term short but the timing is clearly wrong, same with AUD/CAD. I am short GBPUSD but this is more on the strength of the 1.68 level.
EUR: The EUR rose strongly against the USD last week, this was unexpected as news had been quite light for the week and I expected this to weigh on the currency. Rising on no news shows that there is some serious buying action behind the EUR. Despite the strong rise in the AUD last week, the AUD couldn’t gain much against the EUR. The NZD had trouble against the EUR too, although the huge swing on Friday suggests that there is some selling pressure still there. The EUR was also strong against the GBP in the latter part of the week, although less than the USD.
There isn’t a whole lot of news coming up next week but Draghi is clearly pushing much harder now for a weaker EUR, in a speech on the sidelines of G20-IMF, and seems to now be explicitly targeting a lower EUR. The response of the market to this rhetoric so far has been indifference. It is hard to see why anything should change now. I am growing cautious about the EURAUD short here. I am going to keep it on but we should have really got a bit more momentum up last week. I think that long-term short EURUSD is the place to be but the timing is clearly not right for this trade.
GBP: The GBP fell away as expected from the 1.68 level after rallying hard through the week. The IP numbers released last week were stronger than expected and it still looks like the BOE will hike ahead of the Fed. The BOE has also been far more aggressive in its rhetoric recently so this move higher is certainly justified.
I am picking off the 1.68 level because it is just such a good level but I have far less conviction about this trade given the past few weeks of trading. If you want to be long the USD, you should be short something else. However, this is a good level and I am in with a tight stop. There is a bit of news this week but it is really unlikely to change the equation in any way. USD longs are really just waiting for Yellen to say something that matches up with the current timetable for rate hikes. I am not really watching any other GBP crosses too closely but the move back up into the trading range in GBPCAD looks interesting.
AUD: The AUD continued to move strongly against the USD and CAD last week but stalled against everything else. I expected broader strength from the AUD after some strong employment numbers but we didn’t really get it.
AUD minutes are, most likely, going to be as expected so it is unlikely that news out of AUD will drive price. However, the move higher against the USD raises the prospect of some more rhetoric from the RBA. As mentioned extensively before, I am not too sure about the AUD over the long-term and I think the RBA is likely to try and talk the currency down as the economy moves away from mining. I think that EURAUD isn’t a bad short to have even if you aren’t bullish on the AUD. When the AUD does fall away, flows will, most likely, go into the USD. I think that the question should be: how do you think about the JPY then? If the AUD did go down, USDJPY might trade in a range (JPY is a safe-haven currency). Either way, I think the EURAUD is still a nice position to have.
CAD: The CAD fell against the USD convincingly this week, closing above the 1.09 resistance level. Obviously, this is a bit frustrating but it was a huge swing through the week which wasn’t really tradable. The rally seems to have been driven by the Fed Minutes, I am not really too sure why as there wasn’t really anything that unexpected. Rather, I suspect that the rally was more driven by people closing out shorts after the squeeze.
CAD CPI is out on Thursday which should drive some movement but this is a pretty light week all-in-all. I think that we will get some more USD buying. Unlike the EUR or AUD which both seem to rise on no news, the CAD is clearly struggling to keep up this pace. This is quite understandable as the CAD economy is really not that strong and won’t raise rates ahead of the Fed. I don’t really have any position on this though and I am just going to keep clear.
JPY: I am long USDJPY and have bought some more on the strength of the 101 level. The U.S. stock market continues to drive this cross and I really have no idea what the JPY might do. There is some interesting news later in the week, consumer confidence will be very interesting as we see the effects of the consumption tax start to work through the economy.
Longer-term I still want to be long USDJPY. The US economy is strengthening and the JPY recovery looks very shaky, clearly capital flows are moving in the other direction and I think that, if I want to be short AUD later, this could prove to be a problem later. At this stage though, I am happy to just to play this level and see what happens.
NZD: I am still short the EURNZD, this is a technical trade more than anything else and I think you need to watch what is happening in the NZDUSD to take this on. The NZD is clearly having some trouble breaking higher but shouldn’t be trading any lower either. It is just about waiting for the trigger to get some momentum going.
