When the market doesn’t know what it wants to do with the Euro, there’s nothing like random ad hoc developments to push it around as we await next week’s summit.
S&P’s downgrade of Spain’s debt spoiled the small EURUSD rally yesterday and saw the pair pushing all the way back to the 200-day moving average at 1.2825 before finding support and closing the gap back to the where it was before the announcement on Spain’s debt rating. The Euro rally accelerated in earnest after the Finnish government announced it was in favour of the “single bank supervisor” solution to bailing out/restructuring the EU’s troubled banks. The reversal in EURUSD sets up 1.3000 as the important resistance level from here and cements 1.2825/1.2800 as the critical range support.
The Aussie rally
Aussie is having a go at that key resistance range (from 1.0280 up to 1.325) after an especially strong employment report overnight. Remember that employment data is extremely lagging relative to the other key and more forward-looking numbers, which aren’t looking good for Australia at the moment. With no fundamentals to support it, the Aussie is merely a risk/commodities derivative at this point, with excess weakness potential whenever markets get in a funk and a tendency to outperform only when risk is powering strongly higher. Also note that the front end of the Australia rate curve hardly raised an eyebrow at the strong employment number, so rate-wise nothing happened. That being said, bears only get short term solace here if 1.0250/1.0200 falls quickly again here, which puts today’s highs up as key resistance. Otherwise, the longer we continue to dribble higher, the more we risk sinking into the doldrums of choppy range trading.
JPY shaken and stirred ahead of G7
The JPY made quite a pivot today as treasuries weakened for most of the day after a nasty gapping higher opening that pinched Bund shorts badly. USDJPY dipped its toe into the sub 78.00 waters and found it far too chilly down there to dive in, while EURJPY and other JPY crosses positively rocketed off their new lows on the day. The move only takes most of the JPY crosses back into their range and keeps the various triangular (and derivatives thereof) formations intact, so all we can do is file it under “interesting” for now. The back of the neck tells me something is cooking in USDJPY as volatility nose-dives to lows-since-forever levels. Look out for verbal intervention potential at this weekend’s G7 meeting and in its wake as Japan’s economic straits have become fairly dire and as it is profoundly dissatisfied with its strong currency. There’s a bit of a sloppy upside-down head and shoulders formation in USDJPY, with a neckline around 79.00.
US data
Jack Welch must be kept away from his Twitter account today after we saw a sudden 55+ month low in jobless claims out of the US here just a few weeks before the election. The claims number was a stunning 339k, vs. a four week average that was 375k coming into this week. The Trade Balance data was uninteresting, though it contrasted a bit with a better than expected Canadian trade number and perhaps helped USDCAD back lower. Interesting candlestick in USDCAD, by the way, if we close below 0.9780 (bearish engulfing).
Economic Data Highlights
- New Zealand Sep. Business NZ PMI out at 48.2 vs. 47.4 in Aug.
- New Zealand Oct. ANZ Consumer Confidence out at 110.5 vs. 111.9 in Sep.
- Australia Sep. Employment Change out at +14.5k vs. +5.0k expected and -9.1k in Aug.
- Australia Unemployment Rate out at 5.4% vs. 5.3% expected and 5.1% in Aug.
- Japan Sep. Consumer Confidence out at 40.1 vs. 40.5 in Aug.
- Sweden Aug. Average House Prices out at 2.111M vs. 2.049M in Jul.
- Sweden Sep. Headline CPI out at +0.4% MoM and +0.4% YoY vs. +0.6%/+0.6% expected, respectively and vs. +0.7% YoY in Aug.
- Sweden Sep. Core CPI out at +0.7% MoM and +0.9% YoY as expected and vs. +0.9% YoY in Aug.
- Canada Aug. New Housing Price Index out at +0.2% MoM and +2.4% YoY vs. +0.1%/+2.3% expected, respectively and vs. +2.3% YoY in Jul.
- Canada Aug. International Merchandise Trade out at –C$1.32B vs. –C$1.9B expected and –C$2.53B in Jul.
- US Aug. Trade Balance out at -$44.2 vs. -$44.0 expected and -$42.5B in Jul.
- US Weekly Initial Jobless Claims out at 339k vs. 370k expected and 369k last week
- US Weekly Continuing Claims out at 3273k vs. 3275k expected and 3288k last week
- US Weekly Bloomberg Consumer Comfort Survey out at -38.5 vs. -36.9 last week
- US Weekly DoE Crude Oil and Product Inventories (1500 GMT)
- US Fed’s Plosser to Speak (1630)
- US Fed’s Bullard to Speak with reporters (2200)
- Japan Sep. Domestic CGPI (2350)