5 Key Points To Watch For In The Coming Trading Week

Summer may be winding down faster than the Fed’s QE programs but we were glued to our desks making sense (and hopefully cents) of it all. Here are 5 Key Things we are watching next week.

1. European FX Rates

The euro found a late bid this week and the TradeMarkets Weekly EUR Index quietly registered its largest climb since February 2012. The usual suspects will see if EUR/USD can take out US$1.3415 on its way to $1.3480 but we (and the Okurasho) care more about EUR/JPY finding a floor at ¥131.70. EUR/CAD is a runaway freight train and C$1.4205/ 1.4505 are in sight. Likewise, the Swiss franc notched its strongest gains since April 2013 on the TradeMarkets Weekly CHF Index. Wednesday’s UBS consumption indicator and Friday’s KOF August leading indicator could keep momentum moving in the right direction (er, wrong direction if you are an SNB rate-setter). Finally, and last but not least, the market’s lovefest with the British pound continues unabated with the TradeMarkets Weekly GBP Index up the most since June and the Monthly Index up the most since January 2009. Monday’s Bank holiday will result in less GBP liquidity. GBP/CAD got its glory with a quick late-week peek above C$ 1.6500 before getting whack-a-moled and as much as we like the All Blacks’ Haka, we reckon NZ$ 2.0115 may get taken out faster than Kiwi milk products from Shanghai shelves.

2. Post-Jackson Hole Spin

We’ve never been to Wyoming and as we wrote in this column last week, the closest we’ll ever likely get to Jackson Hole is watching Airwolf reruns. That doesn’t mean the eyes of the entire world aren’t fixated on the KC Fed’s annual symposium this weekend, though. Remarks from Fed Vice Chair Yellen – Bernanke’s possible successor – are due tomorrow (Saturday) and we particularly care about the “Overview” panel with BoE’s Bean and BoJ Governor Kuroda. Japan’s disastrous July trade balance print this week was an embarrassment to Abenomics-philes so look for Japanese jawboning to talk JPY lower. Lest us not forget that BoJ Policy Board’s Iwata and Morimoto will also be on the tape next week. Imagine that – we got through an entire discussion about the Fed without mentioning the word taper, or did we?

3. Canadian GDP and Balance of Payments Numbers

As Herculean as GBP looks now, the Canadian Dollar has been sicker than Quebec’s provincial sales tax rate. The TradeMarkets Weekly CAD Index registered its worst showing since January of this year and the Monthly Index has not been this morbid since June 2010. We’re looking forward to Thursday and seeing if the Q2 current account was wider than –C$ 15.0 billion followed by Friday’s GDP data that could show a month-over-month decline in economic output and a move below 2.5% on an annualised basis. We’re not, ahem, trying to talk anyone’s GBP/CAD long higher, but Bank of Canada is going to have a real problem on its hands if Canadian numbers continue to underwhelm, especially since USD/CAD has been north of parity since mid-February – or as Canadians call it, “summer.”

4. Eurozone Periphery

The Euro clearly got a lift from this week’s PMI numbers. Germany’s outperformance in the manufacturing sector was expected about as much as France’s manufacturing stagnation was anticipated. Trading desks got excited, however, by the best PMI prints in more than a year around the periphery (oops, was that redundant?). Policymakers made it abundantly clearly this week that any additional Greek aid will have to wait until 2014 – long after the electoral referendum on Team Merkel in about one month. So, unless the Bundesbank drapes a German flag over the front of the Parthenon, don’t expect any more largesse for Athens for quite some time. Various confidence prints next Friday may clue us in on sentiment around the periphery and any indication that southern Europe may require less balance sheet from the troika will be construed as Euro-positive.

5. Kiwi

We think RBNZ’s Wheeler and PM Key have milked the Fonterra story as much as possible, and we’re pretty much lactose intolerant. The fact of the matter is that the TradeMarkets NZD Weekly Index has not been this weak since September 2011. That places added emphasis on Monday’s July trade balance data that are expected to enter negative territory. Thursday’s NBNZ August business confidence numbers won’t be half-as-riveting as Friday’s July building permits numbers. House prices in Wellington and New Zealand bring new relativism to the term asset bubble, so much so that Wheeler announced new lending restrictions effective 1 October. Next up for the Aussie on the cross is NZ$ 1.1760.