Intraday Market Thoughts

Germany Wins it all, Eyes onto Yellen

by Adam Button
Jul 14, 2014 0:42

Germany concludes the dramatic World Cup with a 4th win of the title at the expense of Germany, 24 years after it last won the tournament, similar to both Germany and Italy, which both won their 4th titles 24 years after they won their 3rd cup.  But the violence in Middle East and Ukraine on the weekend has raised geopolitical risks but the economic risks remain low this week. Last week, the kiwi dollar was the top performer while the loonie was the laggard after a soft jobs report.

Geopolitics and the Fed will be the focus in the week ahead. Trouble in Israel, Libya, Iran, Iraq and Ukraine are all in the headlines. At the moment the market is comfortable with the risks but with so many trouble spots, the chance of a Black Swan rises.

The calendar begins the week with Japanese industrial production at 0030 GMT. The consensus is for a 0.5% rise but after last week's terrible machine orders report the market will be on guard for a soft report.

The larger story in the week ahead will be Yellen's Humphrey Hawkins testimony. Last week the market leaned toward a hawkish Fed minutes but was disappointed. The market may try again in the hopes that Yellen will talk about rate hikes sooner, especially after Plosser and Bullard made the case for sooner hikes last week.

But what's most likely is a similar tone to Lockhart on Friday. He said it's too early to make a call on interest rates despite some positive indicators on employment. A big surprise would be that if she repeats his statement that above-target inflation for a short period would be acceptable.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -59K vs -57K prior JPY -66K vs -71K prior GBP +42K vs +50K prior AUD +37K vs +33K prior CAD +10K vs -5K prior CHF -7K vs -5K prior NZD +14K vs +6K prior

The big news is that Canadian dollar traders have shifted to a net long position. The final USD/CAD longs were squeezed out last week and then the pair promptly rebounded higher after the jobs report. The pair is due for a bounce, it's just a question of how high.

The other spot to watch is USD/JPY, the market remains heavily long and a 50-pip fall, to below 101.80 could spark a squeeze as faith in Abenomics falls as quickly as faith in Brazilian football.

Our Premium trades in EURJPY, EURUSD, USDJPY, EURAUD and USDCHF remain in progress, with the latest 2 trades in EURJPY with 3 charts alongside a USDJPY to confirm the existing short, which currently currently 80-90- pips in the money. All these trades and charts are in the latest Premium Insights.
Act Exp Prev GMT
Industrial Production (MAY) (m/m)
-2.8% Jul 14 4:30
Industrial Production (MAY) (y/y)
3.8% Jul 14 4:30

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