standThe risk trade finally snapped its winning streak in NY trading driven by poor economic data and upcoming "quadruple witching" tomorrow. Housing data in the US were mixed with housing starts printing as expected while the more forward looking permits numbers came in weaker. Initial jobless claims improved on the week to 545K but the prior week number was revised up to 557K and the four-week moving average continues to drift broadly sideways – so little improvement on the employment front.

The Philly Fed manufacturing index also came out today and while the headline blew away expectations topside, the details were less than impressive. The employment component fell to -14.3 from -12.9 while new orders slipped to 3.3 from 4.2 the prior month. Meanwhile, prices paid rose to 14.9 from 10.0 even as prices received plunged to -10.6 from -1.5 – suggesting major margin compression and pressure on profits. For those expecting inventory re-stocking to bring the US economy out of recession, they will find no solace in this report as inventories fell to -18.1 from 0.3 prior.

IRS data released today also suggest that almost half of US home sales transactions in 2009 thus far were undertaken by folks who applied for the first-time homebuyer $8,000 tax credit – 1.4 million people. This suggests that government largesse has been a huge factor in keeping the US housing market from collapsing further this year. This does not include those who are waiting to apply the credit to 2009 tax returns and so the number could be well above 50%. One has to wonder how much in sales this has brought forward from years to come and the sustainability of "improving" US housing data remains doubtful.

The drop in risk had little impact on the US dollar as the overall trend remained lower here. While EUR/USD did correlate well with the intraday moves in US equities, the pair managed to eke out a modest rally in NY trading from a 1.4712 open to a 1.4741 close. If we get a strong stock market sell-off on "quadruple witching" (multiple equity futures and options expiries) tomorrow, however, look for EUR/USD to take a dive as well. USD/CAD traded with an offered tone but closed just slightly lower at 1.0646 after dropping to a 1.0592 session low. 1.0588 is 61.8% Fibonacci retracement of the 0.9058 (Nov-07) to 1.3064 (Mar-09) move and should be good short-term support.  We built a quick model that suggests 97% of the movement in USD/CAD this year can be explained by the move in commodities and stocks. Thus, short-term selloffs in these spaces should elicit a squeeze higher in the pair.

The upcoming Asia session now puts the focus back on JPY. BoJ Deputy Governor Yamaguchi is expected to speak and any intervention commentary should once again elicit some decent JPY-cross price action. Japanese leading economic indicators and department store sales are also due and should they surprise to the upside, we would look for a better bid yen – in other words, lower JPY-crosses.

Upcoming Economic Data Releases (Asia Session) prior expected

  • 9/17 0:00 GMT JN  BOJ Deputy Governor Hirohide Yamaguchi to Speak in Tokyo
  • 9/18 5:00 GMT JN  Leading Index CI  JUL F  83  - -
  • 9/18 5:00 GMT JN  Coincident Index CI  JUL F  89.6  - -
  • 9/18 5:00 GMT JN  BOJ Monthly Report  18-Sep