US jobless claims data is disappointing. SNB on the warpath - has USDCHF built a base for a solid rally now?
MAJOR HEADLINES – PREVIOUS SESSION
- New Zealand Jul. Trade Balance out at -163M vs. -150M expected
- Australia Q2 Private Capital Expenditure out at +3.3% vs. -5.0% expected
- UK Aug. Nationwide House Prices rose +1.6% MoM vs. +0.5% expected
- Germany Sep. GfK rose to 3.7 vs. 3.6 expected and 3.4 in Aug.
- Sweden Jul. Unemployment Rate fell to 7.9% vs. 8.2% expected and 9.8% in Jun.
- Sweden Jul. Household Lending rose 7.9$ YoY vs. 7.7% in Jun.
- Norway Aug. Unemployment out at 3.0% as expected and vs. 3.0% in Jul.
- UK Q2 Total Business Investment dropped -10.4% QoQ vs. -3.6% expected
- UK Aug. CBI Distributive Trades fell to -16 vs. -23 expected.
- US Q2 GDP second revision out unchanged at -1.0% vs. -1.5% expected
- US Weekly Initial Jobless Claims out at 570k vs. 565k expected and 580k last week
- US Weekly Continuing Claims out at 6133k vs. 6242k expected and 6252k expected
- Germany Aug. CPI out at +0.0% YoY vs. -0.2% expected and -0.5% in Jul.
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)
- Upcoming Economic Calendar Highlights
- US Fed's Bullard to Speak (2100)
- New Zealand Jul. Building Permits (2245)
- UK Aug. GfK Consumer Confidence (2301)
- Japan Aug. Nomura/JMM Manufacturing PMI (2315)
- Japan Jul. Jobless Rate (2330)
- Japan Jul. Household Spending (2330)
- Japan Aug. Tokyo and Jul. National CPI (2330)
Market Comments:
FX Trading in Limbo
We tried to red flag the negative reactions to very positive data over the last couple of days, but any momentum this phenomenon seemed to be creating in the markets (USDCAD's run at 1.1000, EURUSD easing below support yesterday, AUDUSD 's swoon) have vanished into thin air in today's session just after the US GDP figures. The AUDUSD sell-off was largely rejected as of this writing and EURUSD is pounding at the final shreds of short term resistance as well. Thus we seem to be back in technical limbo once again and have to rejigger our lines in the sand (a funny expression, really. A line in the sand is about drawing an ultimatum, an either/or situation - cross this line, and there's no going back. At the same time, if you think about it, they're awfully easy to wipe away and redraw elsewhere if they are crossed and then recrossed confusingly in the charts in a technical context...). Certainly, the four days in a row of unchanged equity levels are hampering the ability of the bigger FX crosses to generate a sustained direction.
Resurgent AUD?
Part of the bid in AUD may have been generated by HSBC's top FX analyst, who upped the estimate on the Aussie as the bank's analysis team also upped its estimate of Chinese GDP going forward. We certainly agree, as we have stated before, that the Australian economy is a derivative of the Chinese economy and that AUD will trade accordingly, but we have a hard time seeing how China sails through the stormy seas of restructuring its economy with nary a hiccup in the next 18 months. The wild variety of opinions on China from very credible analysts is worse than difficult to navigate. The recent cycle of news related to China's cracking down on asset bubble formation risks could be the beginning of more interesting developments there. In any case, AUDUSD stopped falling within a couple of pips of the 0.618 retracement (a fall through which would have helped confirm a higher risk of continued selling pressure) of its latest wave higher. That 0.8235 now becomes the key focus for the bears if we ever work our way back in that direction.
SNB rattling its cage once again
The SNB is getting blue in the face with all of its intervention rhetoric, with the SNB's Jordan out today saying that he "won't accept any further strengthening of the CHF". Can you please clarify, Mr. Jordan? And yet EURCHF has only inched higher by half a percent over the last couple of days. USDCHF has built a very interesting base for this part of the cycle (see more in chart below) and could be quite a performer to the upside if the greenback can ever catch a consistent bid.
Today's batch of US data
The US data was mixed, with no change to the initial GDP adjustment at -1.0% vs. a drop to -1.5% expected (endless nonsense and statistical shenanigans going into that throwaway computation regardless of outcome...) and weekly jobless claims falling, though less than expected - a far more important news item, even if we must reiterate that the critical season for the labor market starts more toward the end of September. The continuing claims data is encouraging, but could be a side effect of long term unemployed unable to renew their benefits. Besides, in cycles past, the initial jobless claims tends to be the leading indicator. One more data point of note that isn't getting any headlines was yesterday's US implied gasoline demand data from the DOE. It is truly remarkable that "implied gasoline demand" in August was at its lowest since 2002. This is remarkable stuff, considering that population grew at least 5% since then.
Short-short term outlook
It's tough going to be a bear here, but the last bits of resistance holding back a trampling by the bulls are still in place - namely, the 1.4280 zone in EURUSD has held so far, if with a little slippage, and AUDUSD could yet tire into the close (below 0.8300 again would be a help...). If EURUSD closes back above 1.4300 on the day, however, then we could be back to the "test of highs" scenario. With three+ months of range-trading now, the day-to-day moves become so much noise, so the bigger picture levels remain the 1.4450 high and the 1.4000 area. To the downside, the new line in the sand, as it were, is at yesterday's low of 1.4206
Watch out for the raft of data from Japan in Asia's Friday session. The market seems to be taking it in stride that a national election is to be held this weekend. The JPY still looks resilient vs. the broader market today. EURSEK and USDSEK look bullish on yesterday's reversal formations
Chart: USDCHF
USDCHF has twice failed to hold new lows in recent weeks as it continues to build a base. The chart is a complete mess, but all downside momentum has left the scene - is the bigger risk of an upside squeeze? The SNB is likely to be active any time the market is tempted to play the downside break. If risk aversion ever returns, the USD is likely to outperform CHF.
