Well, the warmonging cries out of the White House are being thwarted by overwhelming popular dissent. Without going into much details, its looks like over 70% of the US population is against any intervention in Syria, pushing President Obama into another corner. One should appreciate the irony of the situation, to President Putin delight, that the Russian solution is saving Obama from a significant political rebuke , in particular given that the US President had cancelled a personal meeting with him over the Snowden affair.
The stock market showed us, that it still can be, at times, a descent leading indicator. It remained unperturbed with the S&P closing in positive territory for the sixth session in row. Brent crude also come back down from the $117/bbl level to $111/bbl, given us some faith that they are better times to come.
The economic positive economic trends set in place since June continue to be confirmed. China industrial production numbers last week show that Q3 saw some descent uptick in activity, thanks in part to a pick –up in domestic demand as well as exports.
Japan second quarter was revised up strongly from a 2.6% annually to 3.8%, showing the best performance among the Dm economies. ( US 2.5%, EU 1.1%). President Abe instructed his cabinet to compile an economic package by the end of the month, which will offset any adverse effect ,from the intended increase in the sales tax next April. The measures should include additional tax relief for corporation to spur investments and raise salaries. So we continue to be selectively long the Japanese market , with an overweight in real estate.
In Europe, we are waiting for the re-election of Mrs. Merkel. Afterwards, the EU will have to tackle some small problems, such as an additional package for Greece, Portugal continuous downward spiral and probably some pointed questions on the Italian banking sector.
Finally, Brent crude also came back down from the $117/bbl level to $111/bbl, removing the negative influence it would have on global individual consumption should it settle in the $115-120- area for any length of time.
We shall have to remain attentive to the following developments :
- The debate over the Syrian conflict is not over, but has simply been put on pause for the time being.
- The minutes of the next FOMC meeting will be probably the most important factor for the markets. We still have a hard time to believe that even the Fed can joyfully conclude that there is a steady increase in employment.
- The selection and confirmation of the next Fed President. Larry Summers seems to have the favor right now. What it will do to the market is unclear. Schematically , Summers is pro-deregulation , with strong ties to Wall Street, while vice-chairwomen Janet Yellen is seen as pro-regulation and more concerned about the well being of the country. She is said to be the best forecaster on the economy among her pairs at the Fed. Her management skills are highly respected. She has the respect of the global central bank community. We dare guess that global financial markets would feel comfortable with her nomination, while Summers represent uncertainty.
- The budget/ debt ceiling negotiations. We have mentioned before that the Syrian outcome will have probable important implication on this process.
So where does this leave us in our currency trading world ? Not very far from where it has been. We trade the bands. We want to see 1.3350 before taking any position. How this will happen, with what conviction will depend if we decide to wait for 1.34 before going short EURUSD. On the downside 1.31 is an important support ; a break would open 1.28 again.
On the JPY , we think 101.5 ( 0.009850 Sept. future) is probably the top and we would be looking to sell USDJPY at those levels (0.0099 level on Sept. future).
Weekly Pivot on JPY September futures
PP 0.010080, R1 0.010184, R2 0.010380, R3 0.010480
S1 0.009984, S2 0.009780, S3 0.009580
