Intraday Market Thoughts

Safety in Demand as Fed Looms

by Adam Button
Oct 27, 2015 21:57

A series of central bank decisions in the days ahead led to a bid for safe assets Tuesday. The Japanese yen was the top performer while the Canadian dollar lagged. A busy session is coming up with Japanese retail sales and business confidence along with Australian CPI. Ashraf's Premium Insights issued a new EURUSD trade with 6 reasons for the trade backed by 2 charts, while the 2nd USDJPY short was filled and in progress. The English Premium Video Analysis will be available late Wednesday morning.

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Safety in Demand as Fed Looms - Us Econ Surprise Index Oct 27 (Chart 1)

JPY & USD strength dominated the day. The dollar showed some impressive resilience despite a soft durable goods orders report. The all-important non-defense capital goods orders ex-air component fell 0.3% compared to a flat reading expected. It was compounded by a drop in the prior reading to -1.6% from -0.8%. Shipments were also soft.

USD/JPY touched a session low of 120.14 after the report but bids ahead of the big figure sparked an immediate bounce to 120.45 and the pair moved sideways for the rest of the day.

The lasting theme in New York trading was selling in the commodity currencies. The loonie was under particular pressure as WTI crude fell below $43.00. Even as oil prices rebounded to $43.41 late in the day, USD/CAD remained a full cent above opening levels.

AUD/USD was similarly under pressure in a slide down to 0.7175 from 0.7250.

Other US data was mixed. The Richmond Fed was at -1 compared to -3 expected. Consumer confidence was at 97.6 vs 103.0 expected and the Markit services PMI was 54.4 vs 55.1 expected.

The day ahead is a big one with FOMC decision followed by the RBNZ. The BoJ is on Friday and expectations for easing are elevated because it's almost exactly a year since the surprise QE expansion in 2014. Nikkei reported today the BOJ will push back its estimate for hitting 2% inflation and that could be a greenlight for more easing but they could also blame it on external factors. At the moment, 16 of 36 economists surveyed by Bloomberg expect more easing.

The BOJ will get some final pieces of data with Sept retail sales due at 2350 GMT. The consensus is +1.1% m/m after a flat reading in Aug. At 0500 GMT Japanese small business confidence is forecast to rise to 49.2 from 49.0.

The other major data point is Australian CPI, which is expected to rise 2.4% in Q3 in the trimmed mean, which is the core measure. It would take a 2-3 tick miss to spark serious talk about RBA easing next week.

Act Exp Prev GMT
Durables Ex Transportation (SEP)
-0.4% 0.0% -0.9% Oct 27 12:30
Markit US Composite PMI (OCT) [P]
54.5 55 Oct 27 13:45
Cap Goods Orders Nondef Ex Air (SEP)
-0.3% 0.2% -1.6% Oct 27 12:30
Cap Goods Ship Nondef Ex Air (SEP)
0.5% 0.4% -0.8% Oct 27 12:30
CB Consumer Confidence (OCT)
97.6 102.9 103.0 Oct 27 14:00
Richmond Fed Manufacturing Index (OCT)
-1 -3 -5 Oct 27 14:00

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