The USD and JPY blasted stronger today as the question mounts on where this correction ends or whether it develops into something more. Tomorrow is a critical day in that regards.
The sense that we were seeing diminished returns from the QE “triple whammy” completed by the BoJ in Wednesday’s Asian session was partially borne out yesterday, but the exclamation point came overnight as the short term momentum in USD and especially JPY strength spiked further on the back of the weak China Manufacturing PMI (even if it was relatively in line with expectations).
Now it’s everything is a question of correction or reversal? Per default we should always assume the less dramatic scenario, so as long as EURUSD steers clear of the 1.2750 to 1.2830 zone, we’ll call it correction and we’ll only call it “back to the bear” if this area can’t hold. Considering the seasonals tomorrow, however, the risk is higher than normal of a bit of drama, as I discuss below.
In AUDUSD, however, I think a move below the 1.0325/50 area (key retracements and the 200-day moving average in there) will break the chart’s back and shift the focus firmly back lower again, even if there is a subsequent small throwback rally. Stay tuned. Today, the pair has been playing footsy with the 55-day moving average hovering around the 1.0400 area.
Today, we had a Spanish bond auction go off without any detectable hitch and Spanish yields were steady, even at the 10-year maturity, where bonds were also on the block today. The Euro got about 10 pips of encouragement from this development before heading back lower again.
And look at those JPY crosses – is AUDJPY a harbinger of the extent to which AUDUSD is ready to correct? We're back in the danger zone for at least verbal intervention already on USDJPY if we head back below 78.00/77.50.
Chart: AUD/JPY
AUDJPY is looking extremely ugly, showing the resurgence of the JPY despite the renewed QE from the BoJ this week. It’s a bit early for it to enter the discussion, but check out the tremendous neckline-like level just below 80.00. Note as well that we just plunged back through he Tenkan line and back into the Ichimoku cloud. As well, it looks like we are forming an interesting heavy duty reversal on the weekly candlestick chart.
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US Claims Data
The US weekly claims data will likely continue to get more interest than otherwise due to the Fed’s promise to open up additional cans of QE worms should the unemployment rate not improve to their satisfaction. Today’s claims data showed another data point above 380k which continues to pull the moving average in the wrong direction as we have now entered the more seasonally interesting bit of the employment season that stretches from about here until January. Today’s data was still too close to expectations to deserve much of a reaction. Look for a break above 400k for any real test of the QE meme.
Looking ahead
Again, the next couple of days are all about where this “countermove” to the big run-up in risk trades takes us. Very specifically, tomorrow is a critical day with triple witching going on in the US financial markets tomorrow and a reweighting of the S&P500 stocks. Zero Hedge republished some Art Cashin comments on the rather alarming seasonal moves that have occurred in late September going back even to the 19th century. Also, a great post by the normally mega-doomer Paul Farrell over at Market Watch also had a few interesting comments on seasonal phenomena, particularly those around a US presidential election. The second page of that post is a great piece on behavioural problems in trading, too – a must read for all traders, particularly those struggling with their trading – his comments are valid on an investment and a day-trading scale.
As a side note, I wonder if the seasonals have been warped by anticipation of the Fed’s QE3. Time will tell – and look back at the year 2000 if you think the Halloween to New Year time of year in a presidential election year is ALWAYS bullish for risk.
Economic Data Highlights
- New Zealand Q2 GDP rose +0.6% QoQ and +2.6% YoY vs. +0.4%/+2.6% expected, respectively, and vs. +2.3% YoY in Q1
- Japan Aug. Adjusted Merchandise Trade Balance out at -¥472.8B vs. -¥384.6B expected and -¥371.9B in Jul.
- China Sep. HSBC Flash Manufacturing PMI out at 47.8 vs. 47.6 in Aug.
- Germany Aug. Producer Prices out at +0.5% MoM and +1.6% YoY vs. +0.4%/+1.5% expected, respectively and vs. +0.9% YoY in Jul.
- Switzerland Aug. Trade Balance out at +1.73B vs. +2.88B in Jul.
- Germany Sep. Preliminary Manufacturing PMI out at 47.3 vs. 45.2 expected and 44.7 in Aug.
- Germany Sep. Preliminary Services PMI out at 50.6 vs. 48.5 expected and 48.3 in Aug.
- Euro Zone Sep. Preliminary Manufacturing PMI out at 46.0 vs. 45.5 expected and 45.1 in Aug.
- Euro Zone Sep. Preliminary Services PMI out at 46.0 vs. 47.5 expected and 47.2 in Aug.
- UK Aug. Retail Sales ex Auto Fuel out at -0.3% MoM and +3.1% yoY vs. -0.3%/+3.2% expected, respectively and vs. +2.8% YoY in Jul.
- UK Sep. CBI Industrial Trends out at -8 vs. -15 expected and vs. -21 in Aug.
- UK Sep. CBI Trends Selling Prices out at 3 as expected and vs. 1 in Aug.
- US Weekly Initial Jobless Claims out at 382k vs. 375k expected and 385k last week
- US Weekly Continuing Claims out at 3272k vs. 300k expected and vs. 3304k last week
- US Weekly Bloomberg Consumer Comfort Survey (1345)
- Euro Zone Sep. Preliminary Consumer Confidence (1400)
- US Sep. Philadelphia Fed (1400)
- US Aug. Leading Indicators (1400)
- US Fed’s Kocherlakota to Speak (1730)
- UK BoE’s King to be Interviewed on TV (1800)
- US Fed’s Pianalto to Speak (2100)
- US Fed’s Bullard to Speak (2230)
- New Zealand Aug. Credit Card Spending (0300)