Instraday Market Thoughts

A Rotation Trade Hidden in the Fed Talk

Jul 29, 2014 22:33 | by Adam Button

The US dollar climbed broadly as traders buckle up for a big day but the source of buying might not be what you think. The dollar was the top performer while the kiwi continued to lag. The day ahead is jam-packed with top-tier indicators.  In today's edition of the Premium Insights, we publish a new justification for the existing EURJPY trades with two new charts as they net +150 pips gain. Both EURAUD trades are netting +500 pips gain, while last week's PRE-RBNZ AUDNZD trade netted +190 pips.1 of 2 GBPUSD long  was stopped out. Full access to trades & charts is in the Premium Insights.

The market will be transfixed on the news and releases in the day ahead but below the surface a little-talked-about trade might be poised to have a bigger impact.

Chinese shares have surged 6% in the past week and some related products have seen massive volume spikes. Rumors of market liberalizations are fuelling the gains but we wonder where the money is coming from.

Over the last two years money flooded into Europe and propped up the euro but that money might be looking for a new home. Fund managers like Bill Gross have proclaimed the end of the bull market in periphery bonds as Spanish 10-year yields fall below 2.5%. Lately, equities have also cooled off.

Could that hot money be leaving Europe and heading for China? That sort of flow would help explain the persistent weakness in the euro and strength in the dollar.

It's something to monitor but for now the focus now shifts to a number of major releases. Markets will begin to simmer with the release of June prelim Japanese industrial production at 2350 GMT. The consensus is -1.2% m/m and -5.2% y/y. Soft employment and retail sales data yesterday raised risks for further easing from the BOJ and kept the yen under pressure despite risk aversion.

That will be followed by German CPI, ADP employment, US GDP and the FOMC decision. Markets may be hesitant to react to any single release but watch for an extended move over the following days as traders digest the news.

Ashraf previewed those events and more earlier.

Act Exp Prev GMT
Industrial Production (JUN) (m/m) [P]
-1.2% 0.7% Jul 29 23:50
Industrial Production (JUN) (y/y) [P]
1% Jul 29 23:50
Retail Trade (JUN) (y/y)
-0.6% -0.5% -0.4% Jul 28 23:50
Retail Trade s.a (JUN) (m/m)
0.4% 4.6% Jul 28 23:50
Germany CPI (JUL) (y/y) [P]
0.8% 1.0% Jul 30 12:00
Germany Harmonised Index of Consumer Prices (JUN) (y/y) [P]
0.8% 1.0% Jul 30 12:00
Germany CPI (JUL) (m/m) [P]
0.2% 0.3% Jul 30 12:00
Germany Harmonised Index of Consumer Prices (JUL) (m/m) [P]
0.3% 0.4% Jul 30 12:00
ADP Employment Change (JUL)
230K 281K Jul 30 12:15
GDP Annualized (Q2) [P]
3.0% -2.9% Jul 30 12:30
GDP Price Index (Q2) [P]
1.8% 1.3% Jul 30 12:30

Firming USDX, NFP to Overshadow FOMC

Jul 29, 2014 17:55 | by Ashraf Laidi

The most important week of US economic releases before the “unofficial” start of summer is kicking off with a bang as US consumer confidence hit a fresh 7-year high in July at 90.9, following June's 86.4.  Consequently, the US dollar extends its 3-week winning streak ahead of the week's key figures. Full charts & analysis.

Act Exp Prev GMT
CB Consumer Confidence (JUL)
90.9 85.3 86.4 Jul 29 14:00

Rising Risks Everywhere, Watch Japan Later

Jul 28, 2014 23:18 | by Adam Button

A few risks are mounting in days ahead but not always in the most-obvious spots. The Australian dollar was the top performer while its kiwi counterpart lagged. The focus shifts to Japan later with jobs and retail sales due.  We have a very bullish chart.  What does this chart represent?

Markets were lackluster to start the week but trading will surely pick up. Cable gained after 8 days of declines but ranges were small with EUR/USD trading in just a 17 pip span to start the week.

With risks mounting, volatility is sure to ramp up in the days ahead:

It's growing clear that global hostilities in Ukraine are rising. Putin did not use the Malaysian Airlines tragedy as a reason to de-escalate and the White House said more sanctions are coming this week. Argentina appears to be losing interest in negotiations with creditors as Thursday's deadline approaches. The only options are default or seek a delay but a technical default has probably risen to a 20% probability and the consequences are always hard to predict. The main risk is the Fed. FOMC voter Richard Fisher wrote an op-ed in the WSJ calling for a more hawkish stance, including a taper of portfolio reinvestment. We emphasize that expectations for change are extremely low so the market could be complacent. Economic data: GDP and NFP are the main ones but the market is losing faith in the US economy.

In the near term, a pair of Japanese data points could give markets a nudge with employment and retail data due. First at 2330 GMT is the jobs report but it rarely offers the kind of fireworks of NFP. The unemployment rate is expected to remain unmoved at 3.5%.

At 2350 GMT, it's the June retail sales report and this is more likely to give markets a jolt with sales expected up 0.8% m/m but down 0.5% y/y 

Act Exp Prev GMT
Retail Trade s.a (JUN) (m/m)
4.6% Jul 28 23:50
Retail Trade (JUN) (y/y)
-0.5% -0.4% Jul 28 23:50
Unemployment Rate (JUN)
3.5% 3.5% Jul 28 23:30

Clue to our Eid Pop Quiz أي سوق يُمَثل هذا الرسم البياني؟

Jul 28, 2014 13:24 | by Ashraf Laidi

Wishing you happiness, peace & prosperity in occasion of Eid ul Fitr al Mubarak. This chart below looks very bullish. Guess what it is. And it's not related to Swissy.

أي سوق يُمَثل هذأ الرسم البياني الذي على وشك كسر صعودآ؟ كل عام و انتم بخير

Big USD Week, EUR Net Shorts Soar

Jul 27, 2014 23:35 | by Patrik Urban

The US dollar is poised for liftoff but it needs something, anything, from the Fed to light the ignition in the week ahead. Last week sported the unusual pattern of the Australian dollar as the top performer with the kiwi lagging – boosting one of our Premium trades. The latest CFTC data showed a surge in euro shorts. 

Last week ended with a durable goods orders report that was much weaker than the 0.7% headline suggested. Excluding defense and aircraft, both orders and shipments were weak due to sharp downward revisions. That led to some re-issued Q2 GDP forecasts and added downside risks to the 3.0% consensus in the first look at Q2 on Wednesday.

The main events in the week ahead are the FOMC decision and Friday's jobs report. The market has been burned a multitude of times for betting on a slight hawkish shift from Yellen that never seems to come. With the employment market continuing to improve it's growing difficult to justify rates so low.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -89K vs -63K prior JPY -54K vs -63K prior GBP +27K vs +39K prior AUD +39K vs +40K prior CAD +21K vs +16K prior CHF -7K vs -6K prior NZD +15K vs +15K prior

It doesn't take much to get the euro bears excited. They piled into shorts after the break of 1.3500, driving the euro net short to the most extreme since Nov 2012. The other notable move was the quick shift out of the pound. Traders were slow to warm up and now appear quick to exit with Carney sending mixed signals.  

On Thursday, we issued new trades in EURUSD and GBPUSD with four new charts, while sticking with our EURJPY and EURAUD shorts, especially as the latter entered at 1.46200, targeting 1.4200 missed its final target by 12 pips. We also await the final 1.1020 target in AUDNZD after the 1.0830 entry on Tuesday produced 1.1016 on Thursday, instead of the final 1.1020.