Intraday Market Thoughts

What Data Will Yellen Depend On?

May 21, 2015 23:04 | by Adam Button

If the Yellen-Fed had a single refrain this year it would be data dependency but at some point policymakers need to look at the numbers and decide. The pound was the top performer Thursday while USD and CAD lagged. The Fed's Williams and BOJ decision are due later.  Both of our adjusted EURUSD and GBPUSD neared their final targeta as was confirmed in this week's Premium ideas and charts. EURGBP was stopped out.

Data dependency is more of a question than an answer. Since the Fed has hammered home the point about waiting for good news to hike, the numbers have been almost uniformly soft. It was underscored once again on Thursday with the Philly Fed at 6.7 compared to 8.0 expected, the Markit PMI at a 14-month low, existing homes sales at 5.04m vs 5.23m expected and initial jobless claims fractionally soft.

The US dollar shrugged off the numbers and only took a small step back after 3 days of strong gains but that could change if Yellen indicates some uneasiness at a speech on Friday. If the Fed wants to be data dependent, at some officials have to accept the data for what it is rather than reaching for excuses.

If Yellen indicates less confidence in the outlook the dollar will slide but she's also likely to be careful not to raise alarm bells. Either way, the chances of a September rate fall with every soft economic report.

One person who will almost assuredly brush off the economic data is the Fed's Williams in a speech at 2300 GMT. His San Francisco Fed authored the latest report question Q1 seasonal adjustments. That rhetoric has gone a long way toward the USD bounce this week and don't expect him to back down. In any case, the speech may be a bust because the title indicates it will focus on financial reform.

Up later is the BOJ decision. There is no set time but it's usually out at 0230-0330 GMT. There virtually zero chance of a change in rates or QE but there was chatter on Wednesday about upgrading the economic outlook and that's something that will severely diminish the chance of further QE this year and boost the yen.

Act Exp Prev GMT
Markit Manufacturing PMI (MAY) [P]
53.8 54.5 54.1 May 21 13:45
Markit Manufacturing PMI (MAY) [P]
54.5 54.1 May 22 13:45
FOMC's Williams speech
May 21 23:00
Initial Jobless Claims (MAY 15)
274K 271K 264K May 21 12:30
Continuing Jobless Claims (MAY 8)
2.211M 2.231M 2.223M May 21 12:30
Philadelphia Fed Manufacturing Survey (MAY)
6.7 8.0 7.5 May 21 14:00

Intermarket convergence: bunds, oil, USD, EUR

May 21, 2015 19:52 | by Ashraf Laidi

Ahead of Friday's IFO,Draghi/Yellen speeches, here is the latest technical picture in intermarket dynamics.  FX, OIL, BOND CHARTS & ANALYSIS

Five Days of Gains for USD/JPY

May 20, 2015 22:56 | by Adam Button

The FOMC minutes caused a hiccup in the US dollar but it later recovered. The Canadian dollar was the only G10 currency to outperform the USD while the yen lagged. The China HSBC flash manufacturing PMI is due later.  

US trading was generally lackluster ahead of the FOMC minutes as traders analysed, and perhaps over-analysed, the contents of the report. The dollar initially slumped on headlines saying many Fed officials saw a June hike as unlikely but that was quickly discounted because the market had priced virtually zero chance of a June hike.

As a result, the US dollar fell about 30 pips across the board only to recover. One overlooked part of the report was an upgrade in medium-term Fed growth forecasts. Along with persistent talk that Q1 softness was seasonal, that could make a September hike more likely than markets anticipate.

That said, the Minutes are dated and what Fischer and Yellen say in the next two days, not to mention economic data, is far more important than Fed commentary that's three weeks old.

Yet even more important is price action and the US dollar has quietly strung together a great series of gains. USD/JPY catches our attention because it continued to rally on Wednesday even after a report in Nikkei suggesting the BOJ could raise its economic outlook today after strong GDP revisions yesterday. It would be the first hike in the outlook since 2013 and severely degrades the possibility of BOJ easing this year.

If that report out to be true, it could cause knee jerk selling in the pair but it may be an opportunity to buy in anticipation of a breakout. USD/JPY has been stubbornly solid during the recent period of USD weakness and if yields continue to rise, it will benefit.

Another event to watch in the hours ahead is the HSBC China manufacturing PMI at 01:45 GMT. The consensus is for a slight improvement to 49.3 from 48.9. We warn that trading AUD on Chinese data has been tricky in the past few months. Bad data is quickly discounted and AUD often rallies on the prospect for more Chinese rate cuts.

In today's Premium Insights, we issued a new note with 3 charts reaffirming our GBPUSD trade as we did for our EURUSD trade after our GBPJPY trade was stopped out.

Beyond Fed Minutes, on to Yellen’s speech

May 20, 2015 17:54 | by Ashraf Laidi

The ensuing juncture between the resurging US dollar against the shaky EUR, AUD, NZD on one hand, and oil's gradual stabilisation above the key $58 on the other will witness more clarity into Fed Chair Yellen's Friday speech than from today's release of the April Fed minutes. Full charts & analysis

Look beyond Fed Minutes into Yellen’s speech

May 20, 2015 17:54 | by Ashraf Laidi

The ensuing juncture between the resurging US dollar against the shaky EUR, AUD, NZD on one hand, and oil's gradual stabilisation above the key $58 on the other will witness more clarity into Fed Chair Yellen's Friday speech than from today's release of the April Fed minutes. Full charts & analysis


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