No event risks into end of week - but is market getting a bit too complacent here for the shortest term?


MAJOR HEADLINES – PREVIOUS SESSION

  • New Zealand Aug. Business PMI out at 48.7 vs. 49.6 in Jul.

  • Australia Q3 Westpac/ACCI survey of Industrial Trends rose to 48.2 vs. 54.7 expected and 38.3 in Q2

  • Japan BoJ kept the target rate at 0.10% as expected

  • Sweden Aug. Unemployment Rate out at 8.0% as expected and vs. 7.9% in Jul.

  • UK Aug. Retail Sales were flat at 0.0% MoM vs. +0.1% expected

  • EuroZone Jul. Trade Balance rose to 12.6B vs. 6.4B expected and 5.4B in Jun.

  • UK Sep. CBI Manufacturing Survey shows total orders rising to -48 from -54 in Aug

  • Canada Aug. Consumer Price Index out at 0.0% MoM vs. +0.1% expected

  • Switzerland SNB 3-month Libor target left unchanged at 0.25% as expected

  • Canada Aug. Leading Indicators rose 1.1% vs. 0.5% expected

  • US Aug. Housing Starts out at 598k as expected and vs. 589k in Jul.

  • US Aug. Building Permits out at 579k vs. 583k expected and 564k in Jul.

  • US Weekly Initial Jobless Claims out at 545k vs. 557k expected and 557k the previous week

  • US Weekly Continuing Claims rose to 6230k vs. 6100k expected and 6101k the previous week


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • US Sep. Philadelphia Fed (1400)

  • Japan BoJ Monthly Report (0500)

  • Japan Aug. Nationwide Department Store Sales (0530)

Market Comments:

SNB

The SNB left the 3-month target rate at 0.25%, but raised its forecasts slightly on 2011 inflation and 2009 growth. At the same time, the bank said that it will continue to firmly counter franc appreciation. The market did a standard sell the rumor, buy the fact approach to today's meeting, as EURCHF pulled above 1.5200 today, only to find itself knocked back a few rungs in the wake of the meeting. Were the SNB not in intervention mode, the market would like be relatively short the Franc from a risk appetite perspective anyway, and yet the likes of EURCHF have failed to rally. So it would seem there is little reason to see the franc move out of its range unless the SNB decides not to step in around and lets the franc appreciate a few notches before drawing a new line in the sand.

Odds and Ends

The Westpac survey out of Australia shows the "industrial trends" improving in Australia, though the composite measure is still below 50 and the last two quarters have shown expectations far overshooting the actual readings. AUDUSD posted a new high overnight, but was unable to maintain altitude. First zone of support there is 87.00/86.80. The Yen sold off rather heavily today as bonds remain in the dumps (yields rallying). The argument for a base in the USDJPY is more convincing now, but confirmation is still not in place unless we see a further rise through the key 91.75/92.00 area. It looks like 3.50% will need to be taken out decisively in the US 10-year note benchmark (currently 3.48%) for a break higher in USDJPY to unfold here.

US Data

Mostly in-line US data, as housing data was nearly exactly as expected. The weekly jobless claims showed a marginal improvement, but this was countered by a large increase in the continuing claims, so we'll call it a draw for now. We are nearing the key season for employment, which usually starts later this month and goes into the year-end. If companies decide simply to hang on to more of their employees than last year, the jobless rate will fall due to seasonal adjustments, as normally the year-end period sees a growth in layoffs. Later today we have the second major regional manufacturing index in the US, the Philly Fed after the Empire reading showed an improvement.

Market action

The market showing its usual back and forth, with the USD pattern of late being 3 steps forward, 2 steps back. It's beginning to feel a bit too easy after several days of this kind of action. Today or tomorrow, the market may decide to upset the apple cart with a sharp, brief USD rally (perhaps if equities make a brief 3% downside consolidation run...) or even a sharp acceleration in the sell-off. Complacency is always dangerous. Looking ahead, there is no sign of an event risk on the economic calendar through tomorrow, as the only data of interest includes Japan's Department Store Sales and Germany's PPI. The BoE will also release a Trends in Lending report. Could this be a setup for a little profit taking into year-end.

Chart: USDJPY

USDJPY is trying to beat out a bottom ahead of the key 90.00 area, but has found no upside confirmation just yet, as the key 91.75/92.00 bars the way to the upside.

USDJPY