The New Zealand dollar starts the week a quarter-cent higher after John Key secured his third term as PM. Last week the Canadian dollar was the best performer while the yen lagged. Interestingly enough, the latest CFTC data shows that bets against the yen aren't as crowded as you might think.
The Asia-Pacific calendar starts the week off quietly but the market breathed a sigh of relief as Key won 61 seats in the 121-seat parliament. An extra 4 seats from coalition members gives him a solid majority. The result was generally expected but NZD/USD perked up to 0.8155 from 0.8120 at Friday's close.
Other moves have been small but we note some minor GBP/USD strength in what could be a sign that frightened real money that exited the pound during the referendum fright is creeping back in. That will be a theme to watch in the weeks ahead.
On the weekend, the G20 communique refrained from rocking the boat in any way by avoiding all mention of Russia.
The euro is flat so far but could get a lift after Moody's affirmed France's rating late on Friday despite rumors of a downgrade. That could be counteracted by weekend comments from ECB governing council member Coeure who said the ECB is ready to act again if needed. He hedged that by saying it's too early to judge the impact of the latest measures.
Commitments of Traders
Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -137K vs -157K prior JPY -83K vs -101K prior GBP -6K vs +27K prior AUD +22K vs +41K prior CAD +8K vs +12K prior CHF -11K vs -14K prior NZD +1K vs +10K prior
We'd caution against reading anything into the GBP numbers because they were very fluid before and after the polls.
What stands out is the lack of conviction in USD/JPY longs. 83K is a decent sized position but given the past enthusiasm for the pair, don't be surprised to see that get a lot more crowded. It gives us optimism that 1.10+ is possible.
|Fed's William Dudley speech|
|Sep 22 14:05|
Cable regained the 1.64000 figure, alongside all GBP pairs as polls closed in Scotland's independence referendum, with the first poll from YouGov finding a 54% No, 46% Yes. The pound was a top performer on the day along with CHF after the SNB didn't introduce negative rates. The first referendum results could hit around 0100 GMT. In today's Premium Insights, we issued 2 new GBP trades with 2 charts ahead of ahead of the upcoming Scottish referendum announcement. NZDUSD, USDCHF and NZDCAD have all hit their final targets. Full trades & trades Latest trades & charts
Cable has inched back from as low as 1.6054 last week and a flurry of buying hit just hours before the results as the final polls showed a 4-6 point lead for the No side. The first referendum results are expected from Stirling at 0100 GMT which is believed to be a stronghold for separatists. If they do poorly there, the market will quickly price in a No victory.
At 0300GMT (0400BST) results from the anti-separatist stronghold South Lanarkshire and independence stronghold of Dundee are due. If one side takes both, it's over.
By the time a final result is announced the 'buy the rumor and sell the fact' trade in cable could be underway.
If it remains close it could be a long night as ballot boxes arrive from remote areas. One of the late announcements will come from Aberdeen, which is a wealthy area and likely to tilt the balance back toward No if it's extremely close. The final votes should be in by 0700 GMT but if it's still close then, the market will be running scared and cable in free-fall.
What was also notable Thursday was the paring of post-FOMC gains in the US dollar. Aside from USD/JPY, the US dollar took a break and all the gains against CAD and NZD have now evaporated.
Six hours until the preliminary results of the Scottish Referendum start emerging from Scotland's 32 regions, GBP accumulates fresh upside against all currencies after all, but one poll show majority for the 'No' camp. GBPUSD nears the top of its 2-month trendline resistance and GBPJPY hits a fresh 6-year high. Holding two GBP shorts in our Premium trades, we added 2 GBP trades to hedge those positions ahead of what promises to be a volatile 5-7 hours. Reflecting recent stabilisation, GBPUSD 1 month call options have fallen for two straight days. Meanwhile, our Premium trades in NZDUSD, USDCHF and NZDCAD have all hit their final targets over the past 24 hours, with an average gain of 170 pips per trade. The latest trades and charts are found in the Premium Insights.
The main Fed focus ahead of the decision was on the inclusion of the words “significant slack” to describe the labor market and “considerable time” to describe when the first rate hike would come after QE3. Neither was altered as the doves remained in control.
However, the hawks made some progress with Fisher adding his dissent to Plosser's and 14 members now expecting a hike in 2015, up from 12. But perhaps the most notable change was in the dot chart as the median estimate for the end of next year rose to 1.375% from 1.125%.
Yellen and other Fed members have lamented the dot chart in the past and even talked about removing it because of the mixed signals that it sends. On the dovish side, the Fed added some language about low inflation after a soft CPI report.
We don't question the wisdom of the market but looking at the statement alone and knowing the lousy history of Fed forecasts we struggle to see a clear justification for the level of dollar buying following the statement. An alternative view is that the strength of the dollar rally represents the pent up demand for USD that was sidelined ahead of the Fed and unleashed afterwards.
In that case, the dollar rally could have much more room to run.
The focus now shifts to the Scottish referendum. The final opinion polls showed the No side ahead 2-6 points. The largest poll placed the anti-independence side in the lead 52% to 48%.In the aggressive round of US dollar buying that followed the Fed decision the pound held up better than its rivals in a sign that traders are betting that independence will fail. That could mean the cable rally following the results could be short lived.ni fed
A rallying trifecta in the US dollar, equity indices and bond yields emerged after the FOMC issued slightly more hawkish projections on the Fed Funds rate. 14 of the 16 Fed members expect a rate hike in 2015, but more importantly, the median estimate for the Fed Funds rate by end of 2015 is now 1.375% from 1.0% in the June projections. Red-line comaprison of FOMC statement and dots forecasts are here.
|Fed's Yellen Speech|
|Sep 18 12:45|