This Is Where The Real Money Players Are…
Macro
Notes:
-Â With
five “notable†economic releases last week here in the US, it still appears
currency players can be no more confident in the outlook for US monetary policy
than they were at the start of the week; and in fairness, this has been the case
since the beginning of June, prior to the first of the summer’s rate hikes by
the Fed. With real money players firmly on the sidelines
(thereby depriving currencies of any degree of momentum) and with those
participating maintaining a focus on relative interest rates differentials, this
uncertainty has been a recipe for range-trading, the likes of which seems
destined to continue for the foreseeable future. It is far from clear just when
the accumulation of economic data will paint a picture of sufficient clarity to
point the way forward.
In all
fairness, this lack of conviction is notable in the rest of the world too.Â
England, which is being seen as nearing the end of its’ tightening policy is
faced with political friction and doubts as to the pace of the housing
slow-down. Europe and Japan are sorting out higher oil costs.
While it
is pains us to say that both the upcoming Fed meeting and the G7 meeting in
October may be the required catalysts for range bound markets, we really see no
other notable events, absent an exogenous “shock†(dramatic move in oil prices),
that would allow for a trend to develop.
-Â The
push and pull between economic growth and inflation continues. Growth is
undoubtedly slowing, while inflation seems tame. However, comments from the
likes of the ECB’s Trichet indicating that a “strong†as opposed to “continuedâ€
vigilance regarding price stability conjures up higher rates in the face of
declining growth. We have stated many times recently that this inflection point
both from a monetary and economic standpoint will take some time to sort out
-Â In the
event the USD requires a downward adjustment to offset the ever rising current
account deficit, most of the brunt will likely be borne by the Euro (EUR) as
Asian currencies will not allow their currencies to ‘out-perform’ in a period of
slowing global growth
-Â Risk appetites remain high, the result should be continued interest in AUD,
CAD & NZD with less interest in CHF
Technical Notes:
Â
EUR/GBP:Â
decent wave pull-back and ema support at .6771. With political instability and
hawkish ECB comments, a move towards .6888-.6900 is in the cards
AUD/NZD:Â
while the trend is clearly down on both daily and weekly, a minor divergence may
offer a solid counter-trend long. Trade entry not fully seen yet, but watching
closely.
EUR/AUD:Â
possible long on wave pull-back with target nearing 1.7865. June and August
highs will be formidable resistance however. Keep an eye on the AUD crosses for
any warning signs that overall demand for AUD is picking up.
USD/CHF:Â
while risk appetite remains high, this adds to our belief that a favorable wave
pattern is playing out to set the stage for higher levels. A break above 1.2860
is needed to confirm this unfolding wave pattern, 1.3000 would be the near-term
target on a breach of this level.
GBP/CHF:Â
simply too much bearishness towards the GBP of late may allow for an impulsive
bullish recovery through the 2.2807 level and quickly move towards 2.2925. Low
risk aversion levels also may act as a catalyst for higher levels.
USD/JPY:Â
range trading continues, however, weekly charts has breached bear trend channel
from Jan 2003. We would look for long entries above 110.40 with 112.50 being
the first medium-term resistance level.
USD/CAD:Â
while weekly and daily trends are clearly down, it appears that CAD has gotten a
bit ahead of itself as oscillators and momentum indicators are signaling a
near-term rally. A break above 1.3060 would confirm a move higher with
Thursday’s low of 1.2890 and recent low of 1.2842 serving as supports.Â
Speculative longs on CAD futures increased from 56,000 to 62,000 contracts, a
level not seen since mid-January.
As
always, feel free to send me your comments and questions.