NOK traders should watch Norges Bank's Gjedrem's speech for forward guidance on rates.
MAJOR HEADLINES – PREVIOUS SESSION
- US Weekly ABC Consumer Confidence fell to -51 vs. -49 a week ago.
- Australia Mar. Westpac Leading Index rose 0.2% vs. -0.1% in Feb.
- Australia Q1 Construction Work Done out at 2.3% as expected
- Japan May Small Business Confidence fell to 42.2 vs. 43.1 in Apr.
THEMES TO WATCH – UPCOMING SESSION
Key Risk Events (All times in GMT)
- Germany May CPI (no time given)
- France May Consumer Confidence (0645)
- Sweden Apr. Retail Sales (0730)
- Norway Announces Deposit Rates (1200)
- US Apr. Durable Goods Orders (1230)
- Norway Norges Bank's Gjedrem to Speak (1245)
- Japan Apr. Retail Trade (2350)
- US Fed's Fisher to Speak (0100)
- Australia Q1 Private Capital Expenditure (0130)
Market Comments
The USD managed to punch a bit stronger in places yesterday, most notably against EUR and CHF, though action remains fairly muted across the board. The obvious trigger for the USD move was a 4-dollar drop in the price of crude oil, the largest fall in the price since March. Gold also went into a freefall yesterday, registering an 18-dollar drop. CAD, NOK and AUD were far more resilient than one might have anticipated in such circumstances, as presumably the growth-positive aspects of the energy sell-off were weighed as heavily as the negative implications for these currencies' current accounts. It appears we would need both demand-related commodity weakness and an equity sell-off to give these currencies a one-two punch.
Also bolstering the USD a bit were the Fed's Yellen's comments. Widely considered a dove, her comments were on the hawkish end of the spectrum, saying that "significant change" would be needed for any more rate cuts and that weak data alone is not enough reason to cut rates. She also said the Fed should not be complacent about inflation. Still, she underlined the developments in the housing market as "one of the biggest risks facing the outlook". Clearly, the fed is on hold for now.
The USD certainly didn't rally based on the results of the latest round of confidence surveys, as the monthly Conference Board number came in far lower than expectations and the weekly ABC number registered a record low for the 22-year history of the survey. Those trying to look ahead of the curve might presume that a large component of the negative sentiment has been generated by record high gasoline prices, and that the confidence problem could be quickly turned around as soon as gas prices stabilize or fall. That's presumably what drove the equity market higher yesterday, in any case - although at least one website trumpeted Asia's falling equity prices as a driver of a weak equity market in the Asian session!
In other news, the US April New Home sales figures were slightly better than expected, but the March number was adjusted downward and the Case/Shiller house price index registered a record drop for March, bringing the YoY level to -14.1% YoY for Q1, vs. -8.9% in Q4. The April and May numbers will be key to watch for signs of stabilization, or at least a deceleration of the deflation, as March saw the climax of the first round of the credit crunch with the Bear Stearns rescue and credit conditions have improved dramatically since then.
EURUSD ticked to a new low late yesterday, but stopped right at the 55-day moving average - there's still a bit of wood to chop to the downside before we can call the technicals bearish. A strong reversal higher is needed to improve prospects for a further rally above yesterday's 1.5817 top. Let's see if the German inflation data can trigger any volatility.
Looking across the market, volatility is rather muted and trading volumes are very light, as conviction in fx-land seems very low. This seems to have favored the accumulation of carry positions. As long as the market avoids any shocks, this could continue for a while longer, but we feel this is a risky proposition at best. It feels like the market lacks a theme to grab on to at the moment beyond oil prices and is searching for a catalyst of some kind. We're keeping our eyes peeled....