Currency Updates:
AUD/USD churned sideways in the NorAm session finishing unchanged on the day from Friday’s close at .9325. The pair was supported by a snappy global equity rally but capped by a continued slide in commodity prices, ending in a stalemate. Spec longs were trimmed slightly (from +33k to +29k) in the latest reporting week but hope in the carry trade lives on. US yields remained heavy as the bond market prices in a possibility that Ms Yellen presses her dovish bonafides this week at Jackson Hole and shockingly weak European data improves the chances for some form of Euro QE. Tactically, AUDUSD has traced out a fairly tight range between the 200 hma (at .9292) and last week’s high at .9335 and the Street doesn’t see much risk/reward in pushing it either way before Mr Stevens and the aforementioned Ms Yellen have their say.
EUR/USD After trundling in a tight range capped by offers at 1.3400 all night and into the NY morning, EUR/USD finally broke below that range and the 200- HMA on word the NAHB was better than forecast, but the sell-off fizzled after there was no follow-through to speak of below Friday’s 1.3359 low. While there was no follow-through, there also wasn’t much of a bounce to speak off from the 1.3353 session lows. Rising Tsy yields helped the USD generally, while the EUR failed to get any help from widespread equities and risk rallies. In the absence of reserve manager rebalancing demand, some of which may have been lost as hot money exited China recently, and amid the ECB’s -10bp depo rate and the major uncertainty from Ukraine, the EUR just doesn’t get the risk-on bounce that it used to. Range bidders at 1.3330-40 with stops building below. Betting has begun as to whether Draghi’s Jackson Hole trip will pave the way for more easing, and specifically QE, so many are keeping their powder dry until Friday’s key speeches. Traders watching the 21-DMA as a topside pivot, Tuesday to be at approximately 1.3402, but below last week’s 1.3416 high.
USD/JPY The yen was weaker against all the majors save for the CHF to start the weak. That was a continuation of the theme from last week that was rudely interrupted on Friday by headlines out of Ukraine. But as the new week began, the worries about Ukraine ebbed and the search for risk and returns resumed. Today’s modest USD/JPY gains were aided by the firmer-than-forecast US NAHB results. Now comes the hard part as offers from 102.70 to 103 are approached. Japan’s July Dept Store Sales and Machine Tool Orders are out tonight. The Nikkei’s recovered pretty well from the Aug 8 lows despite very mediocre econ data, in part on hopes the yen will weaken over the medium-term as the BOJ and Abe govt consider fresh reflation options. Bidders camped out at 102.00-20, with yards of expiries this week between 102 & 103 and only some increase in 1-mo implied-historical vols spreads backing a breakout. Most await Jackson Hole speeches on Friday. GBP/JPY’s rebound off the 200-DMA got a lift from Carney’s latest implied policy tweak. Major resistance is the daly Cloud base and Kijun at 172.42/47. EUR/JPY is consolidating.
Looking Ahead – Economic Data (GMT)
• 22:45 NZ Prod Prices – Inputs QQ* Q2 1%-prev
• 22:45 NZ PPI Output* Q2 0.9%-prev
Looking Ahead – Events, Other Releases (GMT)
• 01:30 AU RBA Releases Minutes of August Policy Meeting
