AUD shorts are feeling the pinch on supportive data in Asia. Meanwhile, we’ve got five central banks on tap during today and tomorrow, but the odds of significant policy shifts are few and far between.
The squeeze on Aussie shorts got additional fuel overnight from a marginally stronger than expected second quarter GDP number and a strong Chinese services PMI. The shorts are vulnerable as the momentum came out of the AUD pairs a long time ago and certain pairs even look technically vulnerable – especially EURAUD and AUDCAD as I pointed out yesterday. It’s all a question of whether this squeeze ends in a few hours or a few days, as nothing has changed in the structural scheme of things and this is all about the ebbs and flows of positioning and market nerves. Look for a move back below 0.9000 as the first hint that this squeeze is over. In the meantime, there is room for further nerves up to 0.9200 and above.
EURAUD
Big levels for EURAUD here down in the low 1.4400’s.
The potential for a US strike in Syria seems to be moving forward more rapidly than one might have anticipated after US President Barack Obama asked for Congressional approval, as the Senate has already reached agreement on a draft authorising some of Obama’s requests, and that could be voted on already today. The House vote will come later and may be more complex. Oil remains on a roller coaster ride following developments in the Middle East.
Looking ahead – central bank mayhem
The next 24+ hours see a downright bonanza of central bank meetings, with the Bank of Canada up later today, the Bank of Japan overnight, and the European trio of Riksbank, Bank of England and the European Central Bank up tomorrow.
Observations for central bank meetings:
- Bank of Canada – Do we see dovish rhetoric as Canadian numbers have been very ugly lately? Citibank’s surprise index is at -80, near the lower extreme of the range for the last several years. Dovish rhetoric and an oil sell-off could finally pull USDCAD through the 1.0600/50 resistance of the last three years. The short-term risk without these developments or a virtually unchanged statement is further range purgatory – this may be the higher risk.
- Bank of Japan – I still see external market conditions (risk appetite and bond markets and US data) as more important than any potential for new policy developments, but much of the noise lately has been related to the government’s plan for a sales tax and the BoJ may observe that it is ready to deepen its commitment to easing if it anticipated that the sales tax will hamper the recovery.
- Riksbank – Nothing on the data front to suggest the risk of dovish rhetoric, though we did see a weak services PMI this morning. SEK has eased back after a long bout of over achievement but we need 8.80+ in EURSEK for technical interest.
- Bank of England – Data has been looking up and there is no reason to expect new developments from an economic angle. Sterling however has been very strong and rates have pushed sharply higher (Gilt at 2.88 percent versus 2.50 percent after BoE Governor Carney strongly complained in early July) so there is a strong risk of a rhetorical check soon. The question is whether we will receive any statement at all from the BoE today besides the usual interest rate/asset purchase target.
- ECB – The last couple of meetings saw the market underwhelmed by ECB President Draghi’s attempts to impress with forward guidance and we’re just coming out of the summer period, so it’s likely just a Draghi bluster-hour tomorrow. The numbers in Europe have likely improved enough to stave off interest rate cut talk for now. Market wise, it remains all about mean reversion after the over-ambitious safe haven rally for euro during the summer.
- Australia Q2 GDP out at +0.6% QoQ and +2.6% YoY vs. +0.5%/+2.4% expected, respectively and vs. +0.5% YoY in Q1
- China Aug. HSBC/Markit Services PMI out at 52.8 vs. 51.3 in Jul.
- Sweden Aug. Services PMI out at 53.7 vs. 54.2 expected and 56.6 in Jul.
- Spain Aug. Services PMI (0715)
- Italy Aug. Services PMI (0750)
- Germany Aug. Final Services PMI (0755)
- Euro Zone Aug. Final Services PMI (0800)
- UK Aug. Services PMI (0830)
- Euro Zone Q2 GDP estimate (0900)
- Euro Zone Jul. Retail Sales (0900)
- Canada Jul. International Merchandise Trade (1230)
- US Jul. Trade Balance (1230)
- Canada Bank of Canada Rate Decision (1400)
- US Fed’s Williams to Speak (1630)
- UK BoE’s Haldane to Speak (1700)
- US Federal Reserve Beige Book (1800)
- US Aug. Vehicle Sales (2100)
- US Fed’s Kocherlakota to Speak (0000)
- Australia Jul. Trade Balance (0130)