A wild time for forex traders with data and Fed Presidents competing

Quick Recap

Stocks had a quieter night Friday but markets in the US were under pressure from the falling oil price (last week’s suggestion it might have found bottom reminds me ‘don’t try to catch a falling knife’) and the really weak profit reports from Exxon Mobil and Chevron.

But the real action was in forex markets where the lower than expected employment cost index (2% v 2.4%) suggested to many traders that the Fed might delay. That drove Euro up above 1.11 and the Aussie dollar to 0.7367ish.

But then James Bullard, St Louis Fed President, put the kybosh on Euro bulls and Us dollar bears by saying that September was live. Seriously anyone who thought it wasn’t must be mad. Then again the sharp reversal suggests a few mad punters in forex world.

That swiftly took the wind from the sails of USD bears and we are back this morning at rates that are familiar to those who haven’t looked at markets since Friday.

The really interesting thing about Friday’s move however is that forex world and bond land are marching to the beat of a different drum. US interest rate markets rallied on Friday with the 2’s back at 2.66% and the 10 year down at 2.18 which is a one month low.

At first blush both can’t be right. But then again they could be. That’s because even with strong employment a low ECI, and associated consumer spending, we could end up with a combination that truncates the size of the Fed tightening cycle rather than postpones it. So the terminal rate might be lower. That allows interest rate traders to rally at the same time forex markets are buying the dollar.

Possibly anyway.

The overnight scoreboard (9.38 am AEST):

• Dow Jones -0.32% to 17,689
• Nasdaq flat at 5,128
• S&P 500 -0.23% to 2,103
• London (FTSE 100)+0.41% to 6,696
• Frankfurt (DAX) +0.46% to 11,308
• Tokyo (Nikkei) +0.30% to 20,585
• Shanghai (composite) -1.13% to 3,664
• Hong Kong (Hang Seng) +0.56% to 24,636
• ASX Futures overnight (SPI September) -12 to 5,638
• AUDUSD: 0.7306
• EURUSD: 1.0972
• USDJPY: 123.97
• GBPUSD: 1.5630
• USDCAD: 1.3099
• Crude: $46.79
• Gold: $1,094
• Dalian Iron Ore (September): 414

On the day

The data flow today could fill even the most drought stricken river. Even though most Sydney trading rooms will be out Monday we still see the release of the AiGroup manufacturing PMI, TD Securities monthly inflation index, as well as HIA home sales and ANZ Job Ads. Offshore Markit manufacturing PMI is out around the world on Monday. Chinese data will be watched very closely given the recent questioning of the official Chinese growth figures. In the US personal consumption expenditure is an important counter point to the ECI on Friday while ISM manufacturing is also out.

CHART OF THE DAY: EURO

Interesting what I wrote Friday about the Euro in context of the price action subsequent to the data release. It reinforces the comment I made that ” Whether it’s Euro or Dollar Index (in many ways the inverse of this chart) what is clear this week is that we have had a failed break. Longer term that makes the recent low at 1.0795/1.08 as super important. A break would be decisive.”