JPY Dominates As USD And EUR Fade

The Japanese yen was strongest against major peers through the European session as USD/JPY fell to ¥98.85, EUR/JPY came off to ¥133.72, GBP/JPY slumped to ¥158.53, and CHF/JPY moved lower to ¥108.41. Japanese financial markets were closed for the Autumn Equinox holiday and some Hong Kong desks remained thin on account of the typhoon, hence JPY liquidity was reduced. August corporate services prices, September small business confidence, and August machine tool orders data will be released on Wednesday with various CPI data due Friday. BoJ Governor Kuroda last week said he expects the economy to continue its recovery “at a moderate pace.”

The U.S. Dollar was pressured against most rivals through the European session as GBP/USD climbed to US$ 1.6046, USD/CHF jumped to CHF 0.9122, AUD/USD appreciated to US$ 0.9437, and USD/CAD came off to C$ 1.0282. St. Louis Fed’s Bullard spoke on Friday and said he does not see any major asset price bubbles at this time, and interestingly noted the FOMC is no more certain of the 2016 economic outlook than “anyone.” Moreover, Bullard said the new incoming Fed Chairman will likely seek to maintain continuity with current policy. Regarding the QE taper, Bullard conceded last week’s decision was a “borderline” call and indicated the FOMC could add an unscheduled press conference to the October FOMC if it decides to taper QE next month, as opposed to December or January. There are already whispers that the Fed’s taper could be at least US$ 15 billion because Bullard suggested a US$ 10 billion taper is nominal. Many Fed officials are scheduled to speak this week beginning with Lockhart, Dudley, and Fisher today. The Chicago Fed’s national activity index and September preliminary PMI data are due today.

The Euro came off against most major currencies through the European session as EUR/USD sank to US$ 1.3510, EUR/GBP weakened to £0.8422, EUR/AUD fell to A$ 1.4330, and EUR/NZD depreciated to NZ$ 1.6122. Germany’s Merkel won her re-election bid quite handily with EUR/USD gapping about 25 pips on the news, but depreciated thereafter because Merkel fell short of an outright parliamentary majority – suggesting her European austerity initiatives may be watered down by coalition negotiations. ECB’s Draghi speaks in the European Parliament today and may amplify the Governing Council’s forward guidance. Today’s data saw French September manufacturing PMI tick lower to 49.5 with services PMI better at 50.7 while German manufacturing PMI decelerated to 51.3 with services PMI much stronger at 54.4. Comprehensive Eurozone manufacturing PMI settled back at 51.1 while services PMI rallied to 52.1. German September Ifo data are scheduled for release tomorrow.

The Swiss franc was weakest against major currencies through the European session as USD/CHF moved higher to CHF 0.9123, EUR/CHF appreciated to CHF 1.2334, GBP/CHF bettered to CHF 1.4634, and AUD/CHF rallied to CHF 0.8601. Today’s Swiss data saw August M3 money supply growth moderate to +10.4% y/y from the prior reading of +10.8% y/y. KOF released its September economic forecast today and lifted its 2013 Swiss GDP forecast to +1.9% from the prior reading of +1.4%, adding it now anticipates 2014 economic growth of +2.1% from the prior forecast of +2.0%. The August UBS consumption indicator will be released on Wednesday and the KOF Swiss September leading indicator will be released on Friday. SNB announced no change in monetary policy last week.

Gold and Silver were marginally weaker through the European session as Gold fell to US$ 1313.40 and was capped at $1331.79 while Silver depreciated to US$ 21.274 and was capped at US$ 21.930. Weekly CFTC positioning data saw the net long position held by speculators recede 17% to 70,113 futures and options for the week that ended on 17 September with longs off 6.8% to 109,217, the least amount since 25 June. Short speculative positions increased 21%. Gold’s post-FOMC rally was short-lived as traders are again focusing on weakness in emerging markets, less sovereign demand for metals, and the likelihood of a Fed taper in the next quarter. Gold ETPs have shed some 26% in value this year, eroding some US$ 59.3 billion on paper.

Crude Oil depreciated through the European session as Brent futures slumped to US$ 108.30 and were capped at $108.97 while WTI futures fell to US$ 103.94 and were capped at $104.68. The Energy complex remains vulnerable to the ongoing lack of military action directed at Syria following that country’s use of chemical weapons on 21 August. The complex’s downside today was limited by news that Chinese September manufacturing PMI rallied to 51.2, a six-month high that may reflect greater industrial activity and demand for Oil. Weekly positioning CFTC data saw net long positions in crude Oil fall 3.1% to 280,959 contracts, the lowest level since 2 July. Traders continue to monitor the resumption of additional output in Libya.