• Home ::
• Technical ::
• Forex Strategy ::
• Forex Trading Strategies

• Send
• Print
• Add To
• Rss

Forex Trading Strategies

e75a672b-30e6-4437-8c06-ae2a23d802e5

10

0

End of month fixing flows a likely driver in FX today after already crazy zigs and zags of late

Fri, Oct 30 2009, 15:09 GMT
by John Hardy

Saxo Bank

CAD smacked by negative August GDP report. JPY back on the strong side on bond rally.

MAJOR HEADLINES – PREVIOUS SESSION

• NeNew Zealand Sep. Building Permits rose 3.3% MoM vs. 4.0% expected
  
  
• Japan Oct. Nomura/JMMA Manufacturing PMI out at 54.3 vs. 54.5 in Sep. 
  
  
• Japan Sep. Jobless Rate out at 5.3% vs. 5.6% expected and 5.5% in Aug. 
  
  
• Japan Sep. Household Spending rose 1.0% YoY as expected 
  
  
• Japan Oct. Tokyo CPI fell -2.4% YoY and -1.4% ex Food and Energy, vs. -2.0%/-1.4% expected, respectively 
  
  
• Japan Sep. National CPI fell -2.2% YoY as expected 
  
  
• UK Oct. GfK Consumer Confidence out at -13 vs. -14 expected and -16 in Sep. 
  
  
• Japan Bank of Japan left target rate unchanged at 0.10% as expected 
  
  
• Japan Sep. Housing Starts fell -37.0% YoY as expected 
  
  
• Germany Sep. Retail Sales fell -0.5% MoM vs. +1.0% expected 
  
  
• UK Oct. Nationwide House Prices rose 0.4% MoM vs. 0.6% expected 
  
  
• EuroZone Oct. CPI Estimate fell -0.1% YoY as expected 
  
  
• EuroZone Sep. Unemployment Rate rose to 9.7% as expected and vs. 9.6% in Aug. 
  
  
• Switzerland Oct. KOF Swiss Leading Indicator rose to 1.45 vs. 1.16 expected and 0.77 in Sep.
  
  
• Canada Aug. GDP fell -0.1% MoM vs. +0.1% expected 
  
  
• US Sep. Personal Income out at 0.0% MoM as expected 
  
  
• US Sep. Personal Spending out at -0.5% MoM as expected 
  
  
• US Sep. PCE Deflator out at -0.5% YoY as expected 
  
  
• US Sep. PCE Core out at 1.3% YoY as expected 
  
  
• US Q3 Employment Cost Index rose 0.4% QoQ as expected 

THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

• US Oct. Chicago PMI (1400) 
  
  
• US Oct. Final University of Michigan Confidence (1400) 
  
  
• US Oct. NAPM Milwaukee (1400) 
  
  
• Australia Oct. AiG Performance of Manufacturing Index (Sun 2230) 
  
  
• UK Oct. Hometrack Housing Survey (Mon 0001) 

• Australia Q3 House Price Index (Mon 0030) 
  
  
• China Oct. Manufacturing PMI (Mon 0100)
  
  
• Japan Sep. Labor Cash Earnings (Mon 0130)
  
  
• China Oct. HSBC Manufacturing PMI (0230)
  

Stay out of the water or jump in head first?

The back and forth continues into today with the USD and JPY trying once again to reverse the previous day's direction. CAD certainly performed a full reversal to the weak side after GDP for August came in below expectations. Today feels like a day to be very cautious in dipping ones toes in the market on a tactical basis after the wild swings of the last few days have raised the market's temperature to close to fever pitch and today is an unpredictable end-of-month fixing day. Of course, that's a hard thing to do as we seem to be in a pivot zone ahead of a very interesting week of event risks. With volatility expansion looking more likely in the weeks ahead after a couple of days like we have just seen and with implied volatility having eased lower (relative to the last 12 months at least - it is not particularly low relative to the previous bubble years of 2005-07), it might be time to investigate a one-week or two-week option with a relatively low delta to express one's view.

Bank of Japan

The Bank of Japan did not tinker with interest rates - no great surprise to the market, to say the least - but did announce a reduction in some of its liquidity measures, a move that bolstered the JPY (though of course, the rally in bonds in the European session today was a key coincident development, as this market is always critical for JPY direction of late). The BoJ said it would halt its purchases of corporate debt by year end, but said it would extend its low interest loan facility for banks another three months. The Bank expected deflation to continue into fiscal 2011.

An action-packed week ahead.

Next week is chock full of event risks, with no fewer than four major central bank meetings (RBA, FED, BOE, ECB) and plenty more. Below we only mention the most interesting data points. Note that the calendars are busiest for the US and Australia:

Monday

• US Oct. ISM Manufacturing - expected to head slightly higher than last month's 52.6, that will depend on the strength of today's Chicago PMI. Of the other regional manufacturing survey's this month, the Empire number surged dramatically while the Philly Fed number faded from Sep. 

• RBA Cash Target Announcement - market looking for another 25-bp move

• Australia Oct. Services PMI - has yet to rise above the 50 level, a bit strange for an economy supposedly so strong that the CB is hiking rates 
• Australia Sep. Retail Sales - expected to fall for quarter on quarter comparisons 
• US Oct. ADP Employment Change - last month's survey was spot on relative to Nonfarm Payrolls number 
• US Oct. ISM Non-manufacturing - the more important ISM. Crossed the 50 level last month for the first time in a year 
• US FOMC Meeting and Rate Announcement- no change to rates expected and they already announced major tinkering of QE programs. This time, only changes are likely to come in small changes to forward guidance. More on this next week. 

Thursday

• New Zealand Oct. Employment 
• Australia Sep. Trade Balance - worsening again as the economy improves - but market cares more about interest rates 
• Switzerland Oct. CPI - there's been a lot of strong data out of Switzerland lately, making interventionism a bit awkward-looking 
• Australia - RBA's Stevens to Speak 
• UK Sep. Manufacturing and Industrial Production data - was awful last time around, so perhaps more closely watched than usual. 
• UK Bank of England Rate Announcement- all eyes on announcements related to asset purchase program intentions as rate going nowhere just yet 
• EuroZone ECB Rate Announcement - nothing to indicate they want to give forward guidance of anything but the dovish kind, Weber notwithstanding 
• Canada Oct. Ivey PMI. This survey has been going great guns - why? It has been erratic in the past, so better than usual chance of an ugly surprise here mostly only for this reason

• UK Oct. PPI Input/Output - Output prices have barely risen out of negative territory despite desperately weak pound. Soon all of these prices will rise due to much lower year ago comparisons, though. 
• Canada Oct. Employment Report - wildly strong report the last time around. Will we see mean reversion to trend this time or is the worst behind Canada's job market? 
• US Oct. Employment Report - the usual madness. The unemployment rate inching closer to the psychological 10.0% level (expected by Bloomberg's consensus to rise to 9.9% from 9.8%) Jobless claims still rolling in at 500+k clip suggest that this number will not fall any time soon. 

Chart: USDCAD

USDCAD changing direction violently on a daily basis these days. Next week's mix of data could help underline the uptrend or tell us whether we're stuck in a range of consolidation. This 1.0800 area has been a sticky one in the past. The move well back into the area above 1.0590 suggests that a structural low is in place until proven otherwise. A move above the local trendline would help underline the bullish case, though 1.10+ is needed to get more traction on a bullish argument. We would also likely need crude oil well back below the recent 77 dollar/bbl. mark for that eventuality.

Published on  Fri, Oct 30 2009, 15:18 GMT