Intraday Market Thoughts

Fed Left in a Tough Spot, Aussie CPI Next

Jan 27, 2015 23:51 | by Adam Button

Separate economic data points on Tuesday left a wildly different impression of the US economy as we count down to the FOMC. The euro snapped back on short covering and was the top performer while USD lagged. The Australian dollar was also an underperformer ahead of a critical CPI report. 1 of 2 Premium AUDJPY trades from last night has been filled and is in the money, while both NZDCAD remain in progress. 

The Fed is highly unlikely to remove a commitment to be patient before raising rates in its decision on Wednesday. Policymakers are looking for clarity on the economy but the picture is growing murkier. Nevermind the divergence between the US and other economies, it's impossible to get a clear idea of the domestic economy.

Dec durable goods orders fell 3.4% in the fifth consecutive flat or negative reading. It was compounded by substantial negative revisions. Details were also weak. Capital goods orders non-defense ex-air fell 0.6% compared to +0.9% expected; also with a big negative revision.

That data point sent a shudder through the US dollar and market participants are increasingly talking about no Fed hikes this year. Then just 90 minutes later reports on consumer confidence and new home sales both smashed expectations to the highest levels since the crisis.

The Fed won't want to pick sides and that ensures no substantial changes in guidance but other factors could weigh on the dollar. The Fed will have noticed falling corporate earnings due to the strong dollar and low inflation because of commodities. That could lead Yellen to downgrade inflation forecasts and note the dollar – both could cause a squeeze on USD.

But first it's the Australian dollar in focus with the 0030 GMT release of Q4 GDP. This is a major report ahead of the Feb RBA decision. The market is divided about the chance of a rate cut and this will likely cast the deciding vote. Overall CPI is expected up 1.8% y/y but the trimmed mean is key; it's expected up 2.2% y/y.  

Act Exp Prev GMT
Consumer Price Index (Q4) (q/q)
0.3% 0.5% Jan 28 0:30
RBA trimmed mean CPI (Q4) (q/q)
0.5% 0.4% Jan 28 0:30
Consumer Price Index (Q4) (y/y)
1.8% 2.3% Jan 28 0:30
RBA trimmed mean CPI (Q4) (y/y)
2.2% 2.5% Jan 28 0:30
New Home Sales (DEC) (m/m)
1.032M 0.450M 0.451M Jan 27 15:00
New Home Sales Change (DEC) (m/m)
11.6% -6.7% Jan 27 15:00
Cap Goods Orders Nondef Ex Air (DEC)
-0.6% 0.9% -0.6% Jan 27 13:30
Cap Goods Ship Nondef Ex Air (DEC)
-0.2% 1.0% -0.6% Jan 27 13:30
CB Consumer Confidence (JAN)
102.9 95.1 93.1 Jan 27 15:00

Flattening yield curve unleashes blow to Fed hike hype

Jan 27, 2015 18:52 | by Ashraf Laidi

US equity markets are gradually confronting the reality that a 2015 Fed hike is out not feasible after US durable goods orders tumbled 3.4% in December after a 2.1%, undershooting expectations of a 0.3% rise. The 11.6% increase in December new home sales was not enough to reverse the market sell-off, which was initiated by disappointing earnings from Caterpillar (-7.1%) and Microsoft (-9.6%) due to slowing global growth and negative impact from the strong US dollar. And what about the sign from the flattening US yield curve?

Act Exp Prev GMT
New Home Sales (DEC) (m/m)
1.032M 0.450M 0.451M Jan 27 15:00
New Home Sales Change (DEC) (m/m)
11.6% -6.7% Jan 27 15:00

EUR/CHF Squeezes Higher, Euro Rebounds

Jan 26, 2015 23:58 | by Adam Button

Markets were active but failed to grab a clear theme to start the week as New York is hit with a massive snowstorm. The pound was the top performer while the Swiss franc lagged badly. Australian business confidence highlights a quiet Asia-Pacific session.  17 days after the last of our Premium AUDJPY shorts hit its final target, has the pair got any more downside left? We answer with 2 new trades and 3 charts in the pair.

A rally in EUR/CHF to 1.0170 from 0.9800 in Europe was the highlight of the day. The move started after the SNB reported the largest one-week rise in sight deposits since March 2013. Ostensibly, deposits would count as inflows into Switzerland by there was talk about financial engineering to reverse it via swaps or debt repurchases.

Overall, EUR/CHF is a murky trade because technical limits are loosely defined, fundamentals don't matter in the short term and flows can be enormous. The trade so far has been to ride the momentum but many traders are staying away until the dust settles.

Overall, the euro was generally stronger despite the Syriza win. Compromise from European leaders about maturity extensions and lower yields may allow everyone to escape unscathed and that helped sentiment but it was clear that euro sellers were present at 1.1280 and 1.1300 so rebounds will be hard pressed to extend.

That pattern is also clear in USD/CAD as chatter mounts about a second BOC rate cut. The OIS market now sees a 30% chance of a cut at the March meeting. USD/CAD slides have been short-lived and a dip near 1.2400 was bought aggressively and pushed the pair to a fresh cycle high of 1.2487 late in the day.

Up next, the Australian dollar is in focus with NAB Business Confidence due at 0030 GMT. There is no consensus but the prior reading was +1. Japanese small business confidence is due at 0500 GMT as well. Neither report is likely to impact the market.

Act Exp Prev GMT
NAB's Business Confidence (DEC)
1 Jan 27 0:30

Syriza will yield to austerity

Jan 26, 2015 17:43 | by Ashraf Laidi

Considering that Troika is willing to grant another extension to Greece's bailout plan, and that even Alex Tsipras' fervent supporters are aware that Greece must repay €4.3 billion in March, Syriza will have to play ball and “compromise” shall remain the name of the game. Full chart & analysis.

One more Webinar - Tuesday morning for Asian folks

Jan 26, 2015 11:06 | by Ashraf Laidi

If you missed my webinar last week, I'm doing one more on Tuesday morning so that Asia/Pacific-based residents can attend. 9:30 am GMT, 5:30 pm Singapore, 10:30 pm Sydney.  REGISTER FREE HERE