A cavalcade of central bank meetings this week with the RBA up tonight, the Riksbank on Wednesday and the ECB and BoE on Thursday. This and key US data all week long should keep FX traders busy.
“Strong” European PMI’s
Europe’s various manufacturing PMI’s looked a bit stronger than expected, but let’s remember that PMI’s are comparative numbers, and a survey heading back to 50 isn’t particularly remarkable when that survey has been under 50 and therefore showing contraction for 28 months, as was the case for the Spanish manufacturing PMI. In other words, today’s reading of 50 means that this is the first month since January 2011 in which the Spanish manufacturing sector stopped getting worse. Meanwhile, the surveys for Italy, France and Germany and Europe as a whole all remain under 50, and Germany’s was revised slightly lower to 48.6 from its preliminary 48.7 reading.
Japan’s Tankan survey looked fairly strong overnight and better than expected, particularly among smaller services companies as USDJPY is back charging at 100.00 again. I still think it is too early to expect USDJPY to begin considering taking out new highs, but that doesn’t mean we face pronounced weakness either – perhaps a bout of sideways consolidation for a time then? Let’s see if 100.00 remains in place – if the pair slices straight through that level and risk remains on and bonds weak, I would likely have to change my tune. Meanwhile, if the rally falters here, the Ichimoku cloud level at 98.16 is rather important near-term support.
Looking ahead
RBA on tap
A crucial test for the Aussie tonight with the latest RBA cash target announcement. A minority are looking for a cut now rather than later, perhaps due to the turmoil in Chinese financial markets and the risks these present. I wonder if the bank might also consider a move now and then a period of quiet until the other side of the mid-September election. Regardless, I wouldn’t be shocked if they do cut, but think it slightly more likely that they merely offer up dovish guidance, with a cut coming at the next meeting instead. The question for the market is whether Aussie has been excessively punished in the near term. The timing is a bit tricky as Friday’s meltdown in Aussie came in the closing hours of the month and quarter. Conditions would appear ripe for a position squeeze on short Aussie trades, but that doesn’t necessarily mean we’ll see one just yet. It’s one of those tricky situations to trade where the fundamentals (AUD bearish) are glaring and obvious to everyone, but positioning is also well established, so the beast of the bear market needs constant feeding to maintain momentum or we risk a momentary backup.
Riksbank
Riksbank is up on Wednesday. I’m looking for stronger signals that a cut is on the way. We’ve had a couple of strong data points out of Sweden, including today’s PMI, but still looking for entry levels for long USDSEK trades and may have found one today as the SEK came back weaker after this morning’s data. Stay tuned, the action will likely remain whippy for now – also as EURSEK has pulled back to the final near-term support areas around 8.70.
Chart: USDSEK
USDSEK is poking around for support after the tremendous rally on the heels of the FOMC meeting. The lows today may be the lows for this consolidation, though there is some room for further slippage back towards 6.60. Wednesday’s Riksbank is likely the trigger for the next bigger move in SEK crosses.
US ISM
US ISM is on tap later today. It was a very disappointing multi-year low at 49.0 in May and the Chicago PMI was very weak on Friday after showing surprising strength last month (just ahead of overall ISM disappointment…). Other regional surveys this month were mixed to strong, so it doesn’t feel like the market is leaning one way. Regardless, the more important activity survey is the non-manufacturing ISM on Wednesday.
ECB and BoE
We also have the ECB and BoE up later this week. Today’s rather “strong” PMI data is making things interesting, but the reality is that the recent backup in yields is putting a strain on EU banks once again and I think the scenario leans toward one of stronger ECB accommodation signals from Draghi than the market expects, especially given the Euro’s strength against the JPY and the runup in EURUSD after the passive performance at the June 6 meeting (EURUSD leapt straight to 1.3400 after that meeting from 1.3100 and was only brought down again by the FOMC and by the backup in bond yields that brought peripheral spreads back wider). As for the BoE, the pound is very weak heading into the meeting, but I’m wondering, considering the recent resilience in UK data, whether Carney’s first meeting (after officially starting today) will pass without much in the way of news – most interesting would be a change in their communication policy (like deciding to issue a statement on the actual day of the meeting or holding a press conference – rather odd that the BoE behaves so differently from other major banks.).
Stay careful out there.
Economic Data Highlights
“Strong” European PMI’s
Europe’s various manufacturing PMI’s looked a bit stronger than expected, but let’s remember that PMI’s are comparative numbers, and a survey heading back to 50 isn’t particularly remarkable when that survey has been under 50 and therefore showing contraction for 28 months, as was the case for the Spanish manufacturing PMI. In other words, today’s reading of 50 means that this is the first month since January 2011 in which the Spanish manufacturing sector stopped getting worse. Meanwhile, the surveys for Italy, France and Germany and Europe as a whole all remain under 50, and Germany’s was revised slightly lower to 48.6 from its preliminary 48.7 reading.
Japan’s Tankan survey looked fairly strong overnight and better than expected, particularly among smaller services companies as USDJPY is back charging at 100.00 again. I still think it is too early to expect USDJPY to begin considering taking out new highs, but that doesn’t mean we face pronounced weakness either – perhaps a bout of sideways consolidation for a time then? Let’s see if 100.00 remains in place – if the pair slices straight through that level and risk remains on and bonds weak, I would likely have to change my tune. Meanwhile, if the rally falters here, the Ichimoku cloud level at 98.16 is rather important near-term support.
Looking ahead
RBA on tap
A crucial test for the Aussie tonight with the latest RBA cash target announcement. A minority are looking for a cut now rather than later, perhaps due to the turmoil in Chinese financial markets and the risks these present. I wonder if the bank might also consider a move now and then a period of quiet until the other side of the mid-September election. Regardless, I wouldn’t be shocked if they do cut, but think it slightly more likely that they merely offer up dovish guidance, with a cut coming at the next meeting instead. The question for the market is whether Aussie has been excessively punished in the near term. The timing is a bit tricky as Friday’s meltdown in Aussie came in the closing hours of the month and quarter. Conditions would appear ripe for a position squeeze on short Aussie trades, but that doesn’t necessarily mean we’ll see one just yet. It’s one of those tricky situations to trade where the fundamentals (AUD bearish) are glaring and obvious to everyone, but positioning is also well established, so the beast of the bear market needs constant feeding to maintain momentum or we risk a momentary backup.
Riksbank
Riksbank is up on Wednesday. I’m looking for stronger signals that a cut is on the way. We’ve had a couple of strong data points out of Sweden, including today’s PMI, but still looking for entry levels for long USDSEK trades and may have found one today as the SEK came back weaker after this morning’s data. Stay tuned, the action will likely remain whippy for now – also as EURSEK has pulled back to the final near-term support areas around 8.70.
Chart: USDSEK
USDSEK is poking around for support after the tremendous rally on the heels of the FOMC meeting. The lows today may be the lows for this consolidation, though there is some room for further slippage back towards 6.60. Wednesday’s Riksbank is likely the trigger for the next bigger move in SEK crosses.
US ISM
US ISM is on tap later today. It was a very disappointing multi-year low at 49.0 in May and the Chicago PMI was very weak on Friday after showing surprising strength last month (just ahead of overall ISM disappointment…). Other regional surveys this month were mixed to strong, so it doesn’t feel like the market is leaning one way. Regardless, the more important activity survey is the non-manufacturing ISM on Wednesday.
ECB and BoE
We also have the ECB and BoE up later this week. Today’s rather “strong” PMI data is making things interesting, but the reality is that the recent backup in yields is putting a strain on EU banks once again and I think the scenario leans toward one of stronger ECB accommodation signals from Draghi than the market expects, especially given the Euro’s strength against the JPY and the runup in EURUSD after the passive performance at the June 6 meeting (EURUSD leapt straight to 1.3400 after that meeting from 1.3100 and was only brought down again by the FOMC and by the backup in bond yields that brought peripheral spreads back wider). As for the BoE, the pound is very weak heading into the meeting, but I’m wondering, considering the recent resilience in UK data, whether Carney’s first meeting (after officially starting today) will pass without much in the way of news – most interesting would be a change in their communication policy (like deciding to issue a statement on the actual day of the meeting or holding a press conference – rather odd that the BoE behaves so differently from other major banks.).
Stay careful out there.
Economic Data Highlights
- Australia Jun. AiG Performance of Manufacturing Index out at 49.6 vs. 43.8 in May
- Japan Q2 Tankan Large Manufacturers Index out at 4 vs. 3 expected and -8 in Q1
- Japan Q2 Tankan Non-manufacturing Index out at 12 vs. 11 expected and vs. 6 in Q1
- Japan Q2 Tankan Small Manufacturers Index out at -14 vs. -19 in Q1
- Japan Q2 Tankan Small Non-manufacturers Index out at -4 vs. -8 in Q1
- China Jun. Manufacturing PMI out at 50.1 as expected and vs. 50.8 in May
- China Jun. HSBC Manufacturing PMI out at 48.2 vs. 48.3 expected and 49.2 in May
- Sweden Jun. Swedbank PMI out at 53.5 vs. 51.2 expected and 51.9 in May
- Spain Jun. Manufacturing PMI out at 50.0 vs. 48.5 expected and vs. 48.1 in May
- Switzerland Jun. PMI Manufacturing out at 51.9 vs. 52.4 expected and 52.2 in May
- Italy Jun. PMI Manufacturing out at 49.1 vs. 47.8 expected and 47.3 in May
- UK Jun. PMI Manufacturing out at 52.5 vs. 51.4 expected and 51.5 in May
- UK May Mortgage Approvals out at 58.2k vs. 55.8k expected and 54.4 in Apr.
- Euro Zone Jun. CPI Estimate (0900)
- Euro Zone May Unemployment Rate (0900)
- US May Construction Spending (1400)
- US Jun. ISM Manufacturing (1400)
- Australia RBA Cash Target (0430)