It was all going so nicely. Russia, the US and Syria had all managed to come to a diplomatic solution to avoid war if conditions are met, which left the markets poised for further Yen weakness ahead of the much anticipated and hyped FOMC this week.
The new Fed chairman had seemingly been decided if not confirmed, then out of the blue, a shock withdrawal from the candidate that the market had assumed was a already unofficially appointed for the Chairman role, save for a bit of red tape. Some important voices in congress must have heard the market chatter of Summers being top pick and thrown some serious spanners into the cogs because Summers has now withdrawn from the running all together.
As an esteemed economist, he would have clearly known the impact of such news on the markets so his reasoning must have been quite important. Some have speculated that it was due to his inability to pursue a more political agenda, effectively having his political wings clipped as the supposedly impartial Fed chairman, but I suspect we will never know the real reason for dropping out. It does leave us with a bit of a problem though so it will be interesting to see who now gets thrown into the spotlight and where they fit on the hawk/dove scale.
This week’s data schedule is completely overshadowed by the FOMC on Wednesday. never the less, here are the data points of note:
Monday Sep 16 9:00am EUR ECB President Draghi Speaks 10:00am EUR CPI & Core CPI 1:30pm USD Empire State Manufacturing Index 2:15pm USD Industrial Production
Tuesday Sep 17 2:30am AUD Monetary Policy Meeting Minutes 9:30am GBP CPI & PPI Input & RPI 10:00am EUR German ZEW Economic Sentiment 1:30pm USD Core CPI 1:30pm USD CPI 11:45pm NZD Current Account
Wednesday Sep 18 2:30am AUD RBA Assist Gov Edey Speaks 9:30am GBP MPC Asset Purchase Facility Votes 9:30am GBP MPC Official Bank Rate Votes 1:30pm USD Building Permits 1:30pm USD Housing Starts 7:00pm USD FOMC Economic Projections 7:00pm USD FOMC Statement 7:00pm USD Federal Funds Rate 7:30pm USD FOMC Press Conference
Thursday Sep 19 12:50am JPY Trade Balance TBA JPY BOJ Gov Kuroda Speaks 9:30am GBP Retail Sales 11:00am GBP CBI Industrial Order Expectations 1:30pm USD Unemployment Claims 1:30pm USD Current Account 3:00pm USD Existing Home Sales 3:00pm USD Philly Fed Manufacturing Index
Friday Sep 20 TBA JPY BOJ Gov Kuroda Speaks 9:30am GBP Public Sector Net Borrowing 5:30pm USD FOMC Member George Speaks 5:55pm USD FOMC Member Bullard Speaks
All times are London time (GMT+1)
USD% Index
With the major bullish channel support now gapped over to the downside the integrity of the bullish channel has been compromised and there is now the possibility for a full scale dollar sell-off as a precaution ahead of the FOMC. The timing of the news may have contributed to the size of the gap with Japan on bank holiday, volumes were even thinner than they usually are at weekly market open. RSI is painfully oversold so some retracement is expected, with a closure of the gap likely before decisions have to be made regarding continuation or break of the weak bullish trend. I have held my long USDJPY and USDCAD positions although I am neutral USD until the the dust has settled
USD% Index Resistance (EURUSD support): EURUSD 1.3357, 1.3313, 1.3287 USD% Index Support (EURUSD support): EURUSD 1.3400, 1.3450
EUR% Index
News over the weekend from Germany regarding the possibility of greater Euro-zone banking union without the need for a European treaty change has added to the already bullish Euro sentiment as a result of the Summers withdrawal. This could see the EUR% index push even higher yet before meeting offers. Nearside resistance at 1.3350 was gapped over which has exposed 1.3400 and beyond that 1.3450 for a potential double top from the EUR% index, although with the FOMC this week and the outcome anything but certain we could see wild volatility in any direction this week. Draghi seems to be stepping up his doveish rhetoric also which adds to the crossfire, with a speech from him early on Monday. I will not be placing any Euro trades until there are less conflicting signals although I maintain a medium to long term bearish bias
EUR% Index Resistance: EURUSD 1.3400, 1.3450 EUR% Index Support: EURUSD 1.3350, 1.3285, 1.3230
JPY% Index
With international war averted in Syria for now, the Yen could continue to be the weakest currency against the weakening dollar, meaning that Long USDJPY positions may survive the shock of the Summers withdrawal. Traders in last week’s COT report showed very strong gains for USDJPY which on one hand gives a clue as to bullish market sentiment regarding USDJPY and conversely may show the potential for fear to creep in causing closure of positions which would push the pair down and the Yen higher. With the Nikkei rallying well from the open this may suggest a bias towards the former and further USDJPY strength relative to the rest of the market I remain cautiously bearish JPY%
JPY% Index Resistance (USDJPY Support): USDJPY JPY% Index Support (USDJPY Resistance): USDJPY
USDJPY Trade Positioning
I am long from 97.21 and I’ve added to this from 98.00, 99.50 and 100 with stops set to break-even for the basket of trades although will aim to close the long from 100 at break even if afforded the chance
GBP% Index
The GBP% index gapped up to meet major bullish resistance at the open which will likely see gains capped there for now. CPI data is released on Tuesday at 9:30 London time and a lower than expected result may see the GBP% index retrace lower as a result of Carney having more policy elbow-room before his knock-out conditions become significant. There is a long way to drop before bullish trend is broken though. A continuation of bullish trend will likely see the 161.8% fib expansion met at GBPUSD 1.5612 although the air is getting rather thin up here so some order-book clearing would likely need to be done before then. Trend is still bullish until the bullish channel has failed
GBP% Index Resistance: GBPUSD 1.5950, 1.5600, 1.5612 GBP% Index Support: GBPUSD 1.5860, 1.5763, 1.5721
AUD% Index
A volatile gap higher for the AUD% index may see further upside for the index, with a gap from the open two weeks ago still not filled. COT showed good support for Aussie longs and there is plenty of room above for correction. With he RBA openly calling the Australian dollar overpriced they may at some point return to a more doveish stance and squash any significant rallies. This week is all about the US dollar though so the near-term outlook of the Aussie revolves around the FOMC still. I am bullish AUD% in the short term
AUD% Index Resistance: AUDUSD 0.9350, 0.9388, 0.9560 AUD% Index Support: AUDUSD 0.9308, 0.9214, 0.9150
CHF% index
The CHF% index gapped higher to meet bullish resistance indicating that the upside may be capped until a retracement has taken place, however the market is still reeling form the shock of the Summers withdrawal so the London open could be very interesting. Overall the market has just let the Swiss franc be pushed around by the US Dollar, so this may again be a useful yardstick for dollar sentiment. Trend has now returned to bullish although the FOMC could soon torpedo that if they announce a decent reduction in asset purchases. I remain sidelined until there is more clarity
CHF% Index Resistance (USDCHF support): USDCHF 0.9200, 0.9100, 0.9150 CHF% Index Support (USDCHF resistance): USDCHF 0.9272, 0.9327, 0.9350
CAD% index
Still in a slow moving down trend and towards the top end of a cyclical pattern, I expect further downside for the Canadian Dollar from the long established trend line shown in yellow.
USDCAD Trade Positioning
I remain long USDCAD at a rejection from CAD% index trend line resistance. Order placed at 1.0326 targeting 1.0655. Stops at 1.0252
