JPY bears in front with GBP leading and USD bid; Oil higher and Gold remains firm
- The Japanese yen was pressured against rivals through the European session as price activity was highly correlated to gains in the Nikkei 225 index: Abenomics 101. USD/JPY traded as high as ¥97.55 with EUR/JPY testing ¥129.89, GBP/JPY reaching ¥151.09, and AUD/JPY up around ¥89.10. Former BoJ rate-setter Nakahara called on the Abe government to postpone the sales tax increase and wires overnight also reported talk of a possible reduction in corporate taxes. Minutes from the BoJ’s July Policy Board meeting overnight saw members continue to project a recovery in the economy and prices. June machine orders printed at -2.8% m/m but were up 4.9% y/y. There is talk of large USD/JPY calls running off on Friday.
- The British pound escalated higher against all major peers through the European session as traders overnight reacted to a +36% RICS house price balance, way above expectations and the strongest print since November 2006. The big news ahead for the U.K. today is the release of July CPI data (+2.8% y/y forecast; +2.9% y/y prior) as traders see how much inflation BoE can stomach following last week’s policy paradigm shift in linking future rate hikes to an unemployment rate around 7.0%, something not seen before Q3 2016. June DCLG house prices (+3.5% y/y forecast; +2.9% y/y prior) will be closely watched. GBP/USD tested US$ 1.5481, EUR/GBP sank to £0.8590, and GBP/CHF traded as high as CHF 1.4356. MPC meeting minutes are due tomorrow and are very important given the new foreword guidance on policy parameters.
- The U.S. Dollar shone brightly through the European session with EUR/USD lower to US$ 1.3287, USD/CHF reaching CHF 0.9285, and AUD/USD coming off to US$ 0.9099. It will be a busy North American session for the Dollar with July advance retail sales (+0.3% forecast; +0.4% prior) and July import prices (+0.8% m/m forecast; -0.2% m/m prior) leading the way followed by June business inventories (+0.2% forecast; +0.1% prior). Atlanta Fed’s Lockhart is on the wire later today with traders looking for more clues about a possible QE taper by the FOMC in Q3 or Q4.
- The Australian Dollar was mixed in heavy activity through the European session with EUR/AUD up at A$ 1.4605 and GBP/AUD testing highs at A$ 1.6976. The Aussie Treasury projected unemployment will reach 6.25% in June 2014, adding the mining boom is past-peak. The Treasury sees the Aussie economic expanding +3.0% in 2014-2015 (from a +2.5% estimate for 2013-2014) with a deficit of A$ 4.5 billion before returning to a budget surplus in 2016-2017. This was the government’s pre-election economic and fiscal forecasts before PM Rudd tries to retain power next month. July NAB business confidence fell to -3 with the July NAB business conditions index unchanged at -7.
- The Euro was mixed-to-stronger against major currencies through the European session with EUR/CHF testing CHF 1.2341 and EUR/NZD reaching NZ$ 1.6672. Early German data saw July harmonised CPI print right on the screws at +0.4% m/m and +1.9% y/y, unchanged from June’s prints. German August ZEW economic sentiment (39.9 forecast; 36.3 prior) and Eurozone June industrial production (+0.3% y/y forecast; -1.3% y/y prior) are scheduled for release today. EUR shook off German media reports quoting the Bundesbank suggesting that Greece may require more loan aid this year or in early 2014, perhaps mitigated by stronger GDP prints in Greece and Estonia with a lighter French current account deficit adding support.
- The Oil complex was bid higher through the European session with Brent spot testing US$ 108.24 and U.S. spot reaching US$ 106.26. The International Energy Agency (IEA) reduced its forecast for global demand to 92 million barrels per day for 2014 on an ebbing Chinese economy and lack of direction from U.S. and European demand. Last week’s CFTC Commitment of Traders report saw the first decline in six weeks of record net speculative long futures interest. Risk appetite remains muted following the recent convergence between U.K. and U.S. spreads.
- Gold took a breather today through the European session, testing an intraday high around the US$ 1341.42 area after surging higher from the US$ 1273.00 level during the past four daily trading sessions including yesterday’s 1.8% climb. The move above US$ 1,320 was a key technical event. Gold has taken cues recently from expectations of a taper in the Fed’s policy, perhaps as early as next month. COT data indicated the largest increase in net speculative Gold futures positioning last week in eleven months.
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