Intraday Market Thoughts

Pollster’s Paradise

Jun 1, 2016 1:25 | by Adam Button

The power of polls was on display Tuesday as the pound sterling dropped after fresh numbers showed the 'leave' side in the lead. The New Zealand dollar was the top performer while GBP lagged. Australian GDP and the Chinese PMI are due up next. A new Premium trade has just been issued in GBP, backed by 2 charts and 5 reasons.

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Pollster’s Paradise - Brexit Polls (Chart 1)

From now until June 23 there will be a heavy emphasis on Brexit polls. The importance was on full display Tuesday. Cable was creeping higher in US trading and at 1.4650 but an ICM/Guardian poll crossed and the pair dropped 80 pips quickly and then continued to slide all the way to 1.4465 in the remainder of trading.

There were two polls, the one conducted by telephone showed 45-42% in favor of leaving and one online was at 47-44% for leaving. The undecided votes were left out and that's a critical detail. In many, similar historical situations, including the Scottish separation vote, a wave of fear on voting day almost always grips the undecided voters and some of those in favour of change.

Bookies continue to show the 'remain' side far ahead and that argues for buying GBP dips but the timing and levels are critical. The decline Tuesday brushed up against the uptrend since April and the 55-day moving average is about 100 pips lower followed by the 100-dma and May low, which are both near 1.4340.

For the month of month of May, the US dollar was easily the top performer, followed by the pound in a sign of the waning Brexit hopes. The Australian and Canadian dollars were the laggards.

At 0100 GMT, it's the official China manufacturing PMI. No one ever really knows exactly how the Chinese economy is doing but worries have ebbed in the past two months. They could flare up quickly on a soft reading. The consensus is 50.0 and the Caixin reading is due 45 minutes later and is expected at 49.2.

The big release of the day is at 0130 GMT with Australian GDP. The consensus is for a solid 0.8% q/q rise, but markets have likely adjusted higher since yesterday's very strong export figures in the current account report. It may take a reading as high as 1.0% to get AUD moving (and send the RBA to the sidelines).

Act Exp Prev GMT
Chicago PMI (MAY)
49.3 50.9 50.4 May 31 13:45

Euro Thoughts, CFTC Positioning

May 31, 2016 1:00 | by Admin

Better German CPI and French GDP Monday may pave the way for a euro reprieve. The Swiss franc was the top performer in holiday-thinned trading Monday while the yen lagged. The week ramps up in a big way from here starting Japanese jobs, household spending and industrial production.  

The euro is in the midst of testing the 200-day moving average and the uptrend since December. On Monday, it got some help from Germany and France. German HICP rose 0.4% m/m in May compared to 0.3% expected. That took the country out of deflation in year-over-year terms. France reported Q1 GDP at 0.6% q/q compared to the 0.5% consensus.  Better investment was behind the beat.

Overall, they're two small improvements but the ECB has placed itself firmly in a wait-and-see mode. The progress in the right direction will be welcomed and is likely to be cheered in Draghi's press conference after the ECB decision on Thursday.

The five-cent drop in the euro this month may partly reverse if nearby support holds. The ebb and flow of economic data will be critical beginning with French CPI Tuesday but also with the wave of data due from the US this week.

The yen started the week softly after the official announcement of the consumption tax delay. It was well-telegraphed so that wasn't likely to have been the reason but it does push Japan further towards the fiscal abyss and closer to monetization.

There have been some good recent signs in economic data and Abe will hope that continues at 2330 GMT with Japanese household spending and industrial production.  Japanese data has been all over the place lately, including strong GDP, trade and machine orders numbers. Jobs data is due as well but it's not a market mover in Japan.

At 0130 GMT  the focus shifts to Australian building approvals The Aussie housing machine is slowing with approvals expected down 6.7% y/y. It's not a big market mover but AUD traders are unsure when the RBA will cut and this could add a small bias.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -38K vs -23K prior

JPY +22K vs +59K prior

GBP -33K vs -38K prior

CHF +4K vs +4K prior

AUD +0.1K vs +25K prior

CAD +20K vs +23K prior

NZD +4.6K vs +7K prior

What stands out is how quickly positioning has shifted in favor of the US dollar. That makes sense given the news flow but the magnitude of the market move doesn't match the aggressiveness of speculative buying. That's a recipe for disappointment.

We've been carefully and cautiously expecting US dollar strength since the FOMC Minutes and, evidently, the speculative market has been as well. Yellen put more gasoline on the fire with a hawkish speech Friday and yet the dollar hasn't really gathered momentum. We remain patient but ignoring the dollar's tepid reaction for too long would be unwise.

The Premium Video of existing and new trades will be posted on Tuesday evening after the month's close of indices, FX & metals.

How Soon is ‘Fairly Soon’?

May 26, 2016 22:53 | by Adam Button

A weak durable goods report and comments from the Fed's Powell offered some insight into what the Fed will do next. CAD and JPY were the top performers, while the pound sterling lagged. Japanese CPI and Aussie Capex are due next.The April US durable goods report highlighted the challenges the Fed faces. There are currently 9 Premium  trades in progress, 2 of which are CAD longs.

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How Soon is ‘Fairly Soon’? - Cad Net Longs May 26 (Chart 1)

Headline orders jumped 3.4% compared to 0.5% expected that was due to a 65% jump in aircraft orders. The strong number will help to boost growth but if you strip out airplane and defense orders, they fell 0.8% and are down 8.7% year-over-year.

But durable goods orders have been weak for two years along with factories. The Fed is more focused on jobs and consumer spending. The Fed's Powell certainly had some reservations about the economy in a rare speech on the outlook but he said a hike would be appropriate 'fairly soon' if data evolves as expected.

He highlighted a desire to see better Q2 growth numbers and risks from the Brexit so that probably eliminates the June 15 FOMC but a hike before October is increasingly likely. The market is only pricing a 60% chance of a hike in September or sooner so that leaves plenty of room for US dollar gains.

In the interim, economic data is critical. US pending home sales rose 5.1% in April compared to 0.6% expected to extend a streak of strong housing data. The Atlanta Fed now sees Q2 GDP running at 2.9%, a pace that's likely strong enough to give the Fed the confidence to hike.

In the broader picture, markets are sending divergent signals. Oil touched above $50 before sagging back to $49.40 but it's debatable whether that's a signal on short-term supply disruptions or global demand. The stock market has shown no fear of a rate hike this week and is back to within striking distance of all-time highs. Bonds haven't budged with US 10-year yields at 1.82%, which is at the middle of the range since February.

In Japan, more reports are confirming that Abe will delay the 2 percentage point hike in the consumption tax scheduled for next April. An announcement is rumored for Wednesday.

We haven't heard a good explanation for the quick 50 pip drop in USD/JPY on Thursday but it never really recovered. The 2330 GMT report on the April CPI could jar the market further. The consensus is for a 0.4% decline y/y but a 0.7% rise ex-food and energy. A sizeable miss could spark speculation about another BOJ move.

Act Exp Prev GMT
Durable Orders (APR)
3.4% 0.6% 1.9% May 26 12:30
Durable Orders , ex-transportation (APR)
0.4% 0.5% 0.1% May 26 12:30
Pending Home Sales (APR)
5.1% 0.6% 1.6% May 26 14:00

CAD Outperforms on BoC, Oil

May 25, 2016 23:51 | by Adam Button

The Bank of Canada took a more-neutral stance than expected on Wednesday and along with rising oil prices that helped made the Canadian dollar the top performer while the yen lagged. Australian capex data and the New Zealand budget are due later. The Premium Insights added a 2nd CAD long to the trades ahead of the BoC decision and EIA inventory announcement. Full rationale and charts analysis to the CAD and other trades is in today's Premium Video.

Most analysts were looking for a hint at a lower trajectory for growth and inflation from the BoC but the communication was strictly neutral. Growth will be dinged by the forest fires in Q2 but the BOC expects a positive payback in Q3 and said the economy was evolving as expected.

They added a touch of skepticism on oil prices as they noted that temporary supply disruptions were helping to lift prices. In policy, however, the BOC will deal with whatever the oil market delivers. On Wednesday, it was more gains on the back of tighter supply in the API and EIA reports. WTI finished more than $1 higher to $49.65. The $50 level is a psychological level but the October high of $50.92 is the technical one to watch.

US dollar news was mixed. The advance trade balance report showed a $57.5B deficit compared to $60.0B expected but the Markit services PMI slipped to 51.2 from 53.0. In broad terms, the dollar was little changed despite another strong day in the stock market.

Cable closed at the highest level since early January and is nearing the May intraday high of 1.4770. Oddsmakers now see a Brexit as a longshot and that's helping to fuel gains.

The Australian dollar bounced around by risk sentiment and the falling Chinese yuan. Today the focus shifts to investment spending and forecasts are for a 3.5% contraction in Q1 in the 0130 GMT report. The number will offer some insight into how deeply mining companies have retrenched but at the same time, if resource prices can hold, that might represent a trough.

The other event to watch is the New Zealand budget at 0200 GMT. Any measures to cool the housing market would give the RBNZ more leeway to cut rates. Alternately, extra stimulus may lead Wheeler to believe that better growth and inflation numbers are in the pipeline.

Dollar Bid Arrives

May 25, 2016 0:11 | by Adam Button

The follow-through from the strong FOMC Minutes finally arrived Tuesday and EUR/USD closed at the lowest since mid-March. The pound was the top performer while the euro lagged. Australian construction and Chinese sentiment numbers are due later. The Premium Video for English speakers will be posted and sent to subscribers after this IMT, covering the existing 8 trades.

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Dollar Bid Arrives - Spx Oil May 24 (Chart 1)

We've lamented the absence of a sustained US dollar bid after the FOMC Minutes surprise but it may have finally arrived. The FX market isn't always quick to change gears but real money USD buying appeared to ramp up.

EUR/USD fell below the 100-day moving average and the late-March lows after three trading days of consolidation. AUD/USD also fell to the lowest since early March with the help of dovish comments from Stevens. The third mover was gold, which dropped $20.

The dollar was given an added lift by a 16.6% monthly jump in new home sales compared to 2.3% expected. The enthusiasm was slightly tempered by the Richmond Fed at -1 compared to +8 expected. The Empire and Markit manufacturing numbers have also pointed to softness.

WTI crude oil caught a late bid to above $49 per barrel after API inventory data showed a 5.1 million barrel draw last week. That leaves the Canadian dollar in a tricky spot ahead of Tuesday's BOC decision. The statement is likely to cool growth expectations.

In the near-term the calendar features Australian skilled vacancies at 0100 GMT followed by Q1 construction work 30 minutes later. The latter is expected to fall 1.5%. Comments from Stevens yesterday were benign but they coincided with AUD selling.

Act Exp Prev GMT
New Home Sales (APR)
619K 521K 531K May 24 14:00