Yesterday saw another day of unwinding the post-Federal Open Market Committee reaction, which brings us to a full day five after the event. My long-time readers know that I often trot out my old rule of thumb that says if an impulse move has not followed through within four days of the event, then the odds of a reversal rise dramatically. Bring on the drama I say, as this would be an excellent area for the USD to make a stand, due to the key reversal implications for EURUSD, in particular if the pair sells off steeply through the 1.3450/00 area.
EURSEK dipped late yesterday on the news that the Swedish government plans to sell the remaining seven percent of its holding of Nordea stock, worth north of USD 3 billion. SEK has certainly been excessively and perhaps even head-scratchingly strong of late ahead of this event in recent weeks. Regardless, SEK remains overvalued, and I wouldn’t expect this to have a lasting impact. I’ll watch the 8.60/8.55 zone for whether support comes in here and a move above 8.65 begins to confirm upside interest.
New Zealand posted its largest trade deficit ever for the month of August (the data is not seasonally adjusted) as exports are down while imports have been sharply up for the last couple of months. Investors need to mind the gap of positive developments in interest-rate spreads versus structural concerns and a massive accumulated current account deficit. NZDUSD has come off hard and the highs may be in for the cycle. Still, If risk appetite and carry trades spring back here and the Reserve Bank of New Zealand actually follows through with a rate hike, the NZD may yet manage one more round of strength. 0.8160 looks like an important support area.
Chart: AUDUSD
AUDUSD support zone around 0.9350/0.9300 looks important. A break below neutralises the rally at minimum for now.
Chinese data looks better according to much of the official data, but Bloomberg made note of a private survey suggesting that data is weakening in manufacturing and transportation. This obviously has tremendous implications if the scepticism spreads on the state of the Chinese growth engine.
My favourite thought of the day yesterday was that one of the more interesting aspects of a government shutdown would be the risk that no economic data is collected for a while. It appears the Republican hard core feels it has most to gain by being as disruptive as possible.
Looking ahead
This feels like a potential “pivot day”, when several USD either swoosh through resistance and the greenback makes an impressive show or does the opposite. The key levels triggering possible further near-term USD strength include breaks of 1.3450 in EURUSD, 1.5950 in GBPUSD, 0.9150 in USDCHF, and 0.9350/25 in AUDUSD. There is also the possibility that the poles of the market from here become Europe on the weak side and the commodity currencies on the strong side if risk appetite makes a comeback – another aspect to consider. JPY crosses will trade very much on the risk/bond market direction axis as well, as the EURJPY rally, for example, looks critically wounded, if not entirely dead if the pair springs back to life today.
Economic Data Highlights
- New Zealand Aug. Trade Balance out at -1191M vs. -700M expected and -771M in Jul.
- Japan Sep. Small Business Confidence rose to 49.8 vs. 49.7 in Aug.
- Switzerland Aug. UBS Consumption Indicator out at 1.32 vs. 1.41 in Jul.
- Germany Oct. GfK Consumer Confidence out at 7.1 vs. 7.0 expected and for Sep.
- Sweden Sep. Manufacturing and Consumer Confidence (0715)
- UK Bank of England to publish financial policy committee meeting statement (0830)
- UK Sep. CBI Reported Sales (1000)
- US Aug. Durable Goods Orders (1230)
- US Aug. New Home Sales (1400)
- US Weekly DoE Crude Oil and Product Inventories (1430)