Month-End Flows won't Obstruct Clarity

Month-end flows may have played a part in the recent USD decline and equity selloff on Monday, but it fit in nicely with yesterday's warning about USD weakness. The Swiss franc was the top performer on the day while the US dollar and yen lagged. A heavy day of data awaits in Asia-Pacific trade. The Premium short in USDCAD was closed for 140-pip gain. A note has been issued after the close. Members' full video is found below.

The US dollar was weak on Monday as July came to an en and CAD is the strongest currency on the month so far. Overall FX moves were miniscule but the kiwi came out slightly ahead with the British pound lagging. Uncertainty about trade and central bank policy remain supreme in FX. In the 2nd half of the quarter, we expect more clarity and that should trigger more lasting moves.

Monday's data on US pending home sales underscored the dilemma. The economy and consumers are strong, yet housing has struggled all year. Pending home sales were down 4.0% year-over-year.

Looking ahead, the calendar is busy with some final data for the BoE before Thursday's rate announcement, and top tier data elsewhere. A BoE hike is 90% priced in so the GfK consumer confidence data at 2301 GMT is unlikely to have an effect but it could make Carney more or less confident in what comes next. The consensus is -9.

Then it's onto the Japanese jobs report and industrial production at 2330 GMT and 2350 GMT. Afterwards Chinese manufacturing is due at 0100 GMT with Australian building approvals and private sector credit at 0130 GMT.

As for AUD/USD, it's struggled to get off the floor but a few rounds of good economic data could help it make progress to the upside.

Don't forget the Bank of Japan

Then comes the Bank of Japan decision, which has no scheduled time but will fall between 0230 GMT and 0330 GMT. The longer it runs, the more likely a change in policy becomes. This is a complex announcement with the BOJ likely to lower its inflation forecasts but at the same time undertaking actions that may be seen as hawkish. Everything is on the table including higher yield curve targets, wider trading bands and changes to ETF buying. The underlying reason is to improve the sustainability of the programs because so much buying is threatening to overly influence some markets. Watch out for a messy market response.