Amid the deep slumber in EURUSD and USDJPY and even GBPUSD to a degree, we are seeing reasonable volatility around the edges of the G10 currencies, as yesterday’s ugly close on Wall Street is seeing those currencies generally positively correlated with risks suffering a sell-off, including major emerging market currencies like MXN and ZAR as well as the smaller G10 currencies like AUD and NZD. Testimony from key Bank of England members yesterday to a parliamentary committee was rather dovish overall, driving forward rate expectations a few basis points lower. Governor Carney himself was jumping through hoops to defend the efficacy of forward guidance, the latest flavour of which is that, while an interest rate hike is likely by late this year, the path of hikes will be modest and the end point will likely be lower than for previous cycles. Another member chimed in with comments expressing dissatisfaction with weak wage growth and that the low unemployment rate is a bit misleading, as many classified as employed are not working full time.
The rather erratic MNI China confidence survey showed a nasty drop to 112.6 for June from 121.2 in May and thus near the low end of the range for the last several years. China was out with reassuring words (should we read between the lines that they are experiencing significant challenges? Very likely.).
Chart: AUDUSD
A bearish pattern reversal in AUDUSD yesterday may be whetting the bears’ appetite for more, with the next local focus at around 0.9320 ahead of the big range level and now 200-day moving average at 0.9200. The next key event risk for the Aussie is the Reserve Bank of Australia meeting next Tuesday.
Looking ahead
A relatively thin calendar in Europe this morning as we await second-tier US data later today in the form of May durable goods orders and yet another revision to the US GDP (expected to be revised lower to a -1.8 percent annualised rate).
It looks like the action is in the small currencies among the G10 at the moment, as something like EURAUD or EURCAD upside represents the pain trade of the moment – a pain trade that is likely correlated negatively with risk appetite. EURUSD doesn’t want to do anything at the moment, as we await for a possible test of the 1.3675 resistance area or a break below the key 1.3500 area for signs of a pulse, though the tactical situation suggests that a break of 1.3600/1.3590 break could lead to a bigger downside move.
Carney is set to make a major speech tomorrow – the Financial Stability Report – that will include the bank’s plans to address the UK’s housing market bubble. This will be a key test for “macro-prudential” policy, amid signs that the UK housing market, at least in terms of overall price, if not activity, is cooling rapidly. I wonder if especially strong measures might hit sterling on its capital account on the fear that this will discourage foreign interest in buying UK property. Stay tuned.
Economic Data Highlights
- China Jun. Westpac-MNI Consumer Sentiment out at 112.6 vs. 121.2 in May
- Germany Jul. GfK Consumer Confidence out at 8.9 vs. 8.6 expected and 8.6 in June.
- Eurozone ECB’s Costa to Speak about Portuguese economy (0845)
- UK June CBI Reported Sales (1000)
- Eurozone ECB’s Linde to Speak (1200)
- US Q1 GDP revision (1230)
- US May Durable Goods Orders (1230)
- US May Durable Goods Orders (1230)
- Eurozone ECB's Weidmann to Speak (1300)
- US Jun. Markit US Services PMI (1345)