If today is like the last many Mondays, then we should spend most of today considering what will happen over the rest of the week as Monday’s have been distinctly uninspiring in terms of trading ranges or compelling trading opportunities.
This brings us to the key event risks for the rest of the week ahead:
This week could offer compelling levels to get involved in AUDUSD shorts again as long as we remain below the 0.9600 level in AUDUSD, or in the worst case, the 200-day moving average, which is dropping toward 0.9650 and was a key resistance level when AUDUSD topped out in October. (Actually, I would generally prefer AUDUSD to stay below 0.9500 on closing levels if I want to maintain the belief near term in further downside.)
I wonder if we’ll see the mention at some point of what I see as the primary risk longer-term for the pound sterling: the risk that this is merely an easy credit recovery driven mostly by the government’s Help to Buy scheme, which is encouraging irresponsible lending and putting risk on the sovereign balance sheet.
Meanwhile, all of the extra consumption from easy credit and the recovery is driving a strong increase in imports while the export recovery isn’t anywhere to be seen so the UK’s current account deficit is tilting toward four percent of GDP as we close 2013 versus a range closer to half of that in the pre-2012 period.
Keep in mind the drumbeat of equity prices ripping ever higher, which guarantees at some point that the taper will come as a needed check on risks to financial stability. Or at least you would think so. After all, since former US Fed chief Alan Greenspan toyed with trying to check the market’s overenthusiasm back in 1996 with his “irrational exuberance” speech, the Fed has avoided spotting bubbles at all costs, firmly steering policy in the rear-view mirror.
Why should it be any different this time? Whenever pondering the Fed’s next step, it always pays to consider MISH’s brilliant post from 2008 – the Fed Uncertainty Principle, which is always up to date because the Fed mentality will only change once its mandate is changed or once it has been banned. One concerns the inevitability on its current trajectory...especially consider Corollary Number 3 of MISH’s Fed Uncertainty Principle:
Don't expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.
GBPUSD: fully back in the higher range and possibly looking at a test and then some of the 1.6260 range highs if the BoE minutes are supportive. It looks treacherous within the range, however.
USDJPY: the rally is rather lacking conviction as the USD remains weak elsewhere. Watch the 100.00 level for obvious reasons and then 99.00 as the final local support. Meanwhile, strong rally prospects are only evident once we see US treasuries selling off, broader USD strength coming in, and a move above the local 100.60 resistance.
This brings us to the key event risks for the rest of the week ahead:
RBA minutes (tonight)
The Reserve Bank of Australia has been stepping up the rhetoric leaning against AUD strength. Look for more signs of this in the minutes tonight. AUD has been trading back higher versus the US dollar from last week’s lows, though it remains very weak against the kiwi.This week could offer compelling levels to get involved in AUDUSD shorts again as long as we remain below the 0.9600 level in AUDUSD, or in the worst case, the 200-day moving average, which is dropping toward 0.9650 and was a key resistance level when AUDUSD topped out in October. (Actually, I would generally prefer AUDUSD to stay below 0.9500 on closing levels if I want to maintain the belief near term in further downside.)
BoE Minutes (Wednesday)
Remember as we anticipate the Bank of England minutes, that we have a strong drop in inflation in the UK as well as in Europe, though it is from a higher level in the case of the UK. So there are no deflation worries just yet, though the BoE could increasingly underline that low inflation gives it the luxury to keep policy accommodative for longer without fretting over inflation consequences.I wonder if we’ll see the mention at some point of what I see as the primary risk longer-term for the pound sterling: the risk that this is merely an easy credit recovery driven mostly by the government’s Help to Buy scheme, which is encouraging irresponsible lending and putting risk on the sovereign balance sheet.
Meanwhile, all of the extra consumption from easy credit and the recovery is driving a strong increase in imports while the export recovery isn’t anywhere to be seen so the UK’s current account deficit is tilting toward four percent of GDP as we close 2013 versus a range closer to half of that in the pre-2012 period.
FOMC minutes (Wednesday)
Again again again, we will pour over the Federal Open Market Committee minutes on Wednesday for the latest signals on the FOMC’s attitude toward the taper. The surprise side should be hawkish after last week’s response to the Yellen testimony.Keep in mind the drumbeat of equity prices ripping ever higher, which guarantees at some point that the taper will come as a needed check on risks to financial stability. Or at least you would think so. After all, since former US Fed chief Alan Greenspan toyed with trying to check the market’s overenthusiasm back in 1996 with his “irrational exuberance” speech, the Fed has avoided spotting bubbles at all costs, firmly steering policy in the rear-view mirror.
Why should it be any different this time? Whenever pondering the Fed’s next step, it always pays to consider MISH’s brilliant post from 2008 – the Fed Uncertainty Principle, which is always up to date because the Fed mentality will only change once its mandate is changed or once it has been banned. One concerns the inevitability on its current trajectory...especially consider Corollary Number 3 of MISH’s Fed Uncertainty Principle:
Don't expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.
BoJ (Thursday)
The Bank of Japan has done nothing to surprise over the last several meetings, and data has mostly been heading in the right direction. Still, the Japanese Yen has failed to continue to pick up any further downside momentum broadly speaking since the big policy move back in April. Do we see signs of increased urgency from the BoJ that it stands ready to do more? The deflation meme elsewhere is not helpful for the BoJ’s efforts.German IFO (Friday)
Is Germany maintaining a head of steam or is the market complacent? This is where the EURUSD chart may pivot if it hasn’t already done so earlier in the week. It’s interesting to note the divergence of the IFO with risk appetite, as the DAX continues to shoot out the lights while this survey has flattened out. The market is likely to pay close attention to this number.Other items
We also have the US Retail Sales data for October up on Wednesday as well as the latest US CPI data. The US core inflation data, at plus 1.7 percent year-on-year is still well above the late 2010 lows, though a particularly low month-on-month data point could increase anticipation of quantitative easing forever, and the headline number is at post-2009 lows at one percent year-on-year.A few technical comments
EURUSD: we spent six days since the surprise ECB-rate cut unwinding the market’s reaction to that cut...could be headed for a full 61.8 percent retracement test above 1.3600 in the weakest USD scenario this week. The chart remains structurally bearish as long as we don’t rip back through perhaps 1.3700.Chart: EURUSD
A typical 61.8 percent throwback rally would see the pair topping out at the 1.3625 area before heading back lower. It will be important for the bears to see a pivot sometime this week, regardless of whether it is at this level or lower or higher.GBPUSD: fully back in the higher range and possibly looking at a test and then some of the 1.6260 range highs if the BoE minutes are supportive. It looks treacherous within the range, however.
USDJPY: the rally is rather lacking conviction as the USD remains weak elsewhere. Watch the 100.00 level for obvious reasons and then 99.00 as the final local support. Meanwhile, strong rally prospects are only evident once we see US treasuries selling off, broader USD strength coming in, and a move above the local 100.60 resistance.
Economic data highlights
- New Zealand Oct. Performance of Services Index out at 58.2 vs. 55.6 in Sep.
- UK Nov. Rightmove House Prices fell -2.4% MoM and rose +4.0% YoY vs. +3.8% YoY in Oct.
Upcoming economic calendar highlights (all times GMT)
- Eurozone Sep. Trade Balance/Current Account (0900)
- US Sep. Total Net TIC Flows (1400)
- US Nov. NAHB Housing Market Index (1500)
- US Fed’s Dudley to speak (1715)
- US Fed’s Plosser to Speak (1830)
- Australia RBA Nov. Meeting Minutes (0030)
Recommended Content
Editors’ Picks
AUD/USD risks a deeper drop in the short term
AUD/USD rapidly left behind Wednesday’s decent advance and resumed its downward trend on the back of the intense buying pressure in the greenback, while mixed results from the domestic labour market report failed to lend support to AUD.
EUR/USD leaves the door open to a decline to 1.0600
A decent comeback in the Greenback lured sellers back into the market, motivating EUR/USD to give away the earlier advance to weekly tops around 1.0690 and shift its attention to a potential revisit of the 1.0600 neighbourhood instead.
Gold is closely monitoring geopolitics
Gold trades in positive territory above $2,380 on Thursday. Although the benchmark 10-year US Treasury bond yield holds steady following upbeat US data, XAU/USD continues to stretch higher on growing fears over a deepening conflict in the Middle East.
Bitcoin price shows strength as IMF attests to spread and intensity of BTC transactions ahead of halving
Bitcoin (BTC) price is borderline strong and weak with the brunt of the weakness being felt by altcoins. Regarding strength, it continues to close above the $60,000 threshold for seven weeks in a row.
Is the Biden administration trying to destroy the Dollar?
Confidence in Western financial markets has already been shaken enough by the 20% devaluation of the dollar over the last few years. But now the European Commission wants to hand Ukraine $300 billion seized from Russia.