If we are seeing an out and out reversal of the QE theme this may not be confirmed until next week, while if this is merely a consolidation we should look for resistance to the USD and JPY strengthening very soon.
As the EURUSD generally failed to hold the 1.300 level on Friday, today began on a weak note and the pair probed lower as risk continued coming off over the disappointment from the BoJ’s further easing last Thursday not generating more interest in pushing the pro-risk, pro-carry trades. The kiwi fared the worst in today’s trade, as NZD/USD dove all the way back below 0.8200 at one point and even the weak Aussie managed a rally against the hapless kiwi on the day after the big run lower in AUD/NZD had taken the pair to a big area around 1.2600.
Other evidence of the consolidating QE trade was the commodities market, as gold and crude corrected lower today, dragging commodity currencies generally lower. Still, except for some of the JPY crosses (I pointed out AUDJPY as especially noteworthy last week, and it has been joined today by NZD/JPY today) this looks like a deep retracement so far and the action outside of the kiwi was fairly orderly. We’ll need to move even further in the direction of USD and JPY strength for any notion of a full scale reversal to gain any “currency”. We note AUDUSD levels below and the USD/CAD pivot zone this week is 0.9800/50.
This week is a bit thin in the event risk department ahead of next week’s usual menu of first-of-the-month data releases out of the US, so it could be a good week to test the strength of previous themes and position
Chart: AUD/USD
We’ve talked a lot about this chart lately and a reminder as we have moved back toward the 1.0400 area that the 200-day moving average is in play somewhat lower. This level has been criss-crossed several times over the last year and more, suggesting that it’s not as big a focus as it might normally be. Instead, the more interesting levels of late have been from trend lines and Fibonacci levels, and on that note, the 200-day moving average does approximately coincide with the important 0.618 Fibo area of the latest wave higher, and the rising trend-line formed by the major 2012 low and the recent 1.0175 low comes in around 1.0270 now, but is rising fast and will be above 1.0300 by the end of the week. The next big leg of AUDUSD movement awaits on the next fall of 1.0300 or 1.0600 levels, it would appear.
AUD/USD" title="AUD/USD" width="455" height="383">
Chicago Fed National Activity Index
The Chicago Fed’s measure of the US economy nudged to its lowest level since the US economy was beginning to emerge from recession in mid-2009 and suggests that a bit of heavy lifting is needed in the US numbers for September and October if we are to avoid a technical recession in Q3/Q4 or Q4/Q1. This data is not a market mover as it is not forward-looking, but it is nonetheless an important comprehensive snapshot of how things are doing in the US as of the month of its release. The next important rounds of data are up already next week (ISM’s and the latest employment report) and we’ve only got Bernanke’s printing press to help the US economy out as we near the US fiscal cliff on January 1.
Looking ahead
This looks to be a very technical week as we head into next week’s event risks. So we’ll look for the consolidation move in the USD and JPY to either extend or find resistance and give an indication of where the new ranges will lie in preparation for next week’s move to either confirm any reversal that sets in or set up a continuation week back in favour of the QE theme.
Economic Data Highlights
- Germany Sep. IFO out at 101.4 vs. 102.5 expected and 102.3 n Aug.
- US Aug. Chicago Fed National Activity Index out at -0.87 vs. -0.12 in Jul.
- US Sep. Dallas Fed Manufacturing Activity (1230)
- US Fed’s Williams to Speak (1930)
- Japan Aug. Corporate Service Price Index (2350)
- Japan Sep. Small Business Confidence (0500)