Market Underlines Desire To Stay In The Range As USD/JPY Reverses

EUR/USD pulls back from a new low and USDJPY pushes back lower after trying to break 80 yesterday – signs that the market doesn’t want to make any strong statements ahead of the weekend and possibly longer.

Last night, the king of stocks (Apple, duh…) reported weaker than expected earnings and gave guidance that had the market rather weak in the knees and risk appetite headed steeply south. There was a bit of follow through today on the risk front and the Euro headed lower still as EU peripheral spreads widened, but by the early US hours, the marginal new lows in equities and highs in the USD were reversed as the market appears unwilling to make too dramatic a statement one way or the other lately and we remain embedded in the range for the moment. Apple of course, opened where it closed yesterday as if nothing happened – a classic example of why the market is all about anticipation rather than reality. Still, the reality is that a fiscal cliff is approaching and this earnings season has been downright ugly and equities/risk appetite/insert-risk-instrument-of-your-choice-here are only being kept afloat by the hands on the levers at the Eccles Building in Washington and the levers need to get bigger and bigger if they are to retain their leverage, given the underlying fundamentals. More on all of this next week as I am cooking up a bit of a US election preview.

Could this kind of ranging behaviour last all the way until the election? The last election is a poor guide for proceedings here because it was the very epi-center, time-wise, of the global financial crisis and an uncontrolled panic deleveraging was the name of the game. In 2004 (outcome extremely unclear, like this time), the market broke strongly in mid-October (weaker in the USD, though interestingly, risk appetite didn’t break higher until shortly after the election result was known) after a summer of indecision. But the issues of 2004 were so remote from those of today that it’s a tough comparison.

Looking ahead
The biggest development today was the huge engulfing bearish formation in USDJPY, which is a real disappointment for the bulls. As I have said a couple of times in recent weeks, the path higher may be getting slowly underway, but the chart is a battleship that it will take some time to turn, if it is indeed turning (back below 78.00 and all bets are off for the near term…). Next week’s BoJ meeting in Tuesday’s Asian session is the next key test for JPY crosses. The NZDJPY and other reversal looks interesting for those who think the JPY might flourish if risk aversion settles in again, but again, let’s see where we are after Tuesday’s meeting.

The other big news this week was the mortal damage done to the EURGBP rally as EURGBP descended as far as 0.8000 today – we may get all messy and rangy, but the downside move really spiked the bullish argument until proven otherwise.

Next week is the first of the month data week for the US, with the ISM on Thursday followed by the employment report on Friday.

Stay careful out there and have a great weekend.

Economic Data Highlights

• New Zealand Sep. Trade Balance out at -791M vs. -850M expected and vs. -809M in Aug.
• Japan Sep. National CPI out at -0.3% YoY and -0.6% ex Food and Energy vs. -0.4%/-0.7% expected, respectively and vs. -0.4%/-0.5% in Aug.
• New Zealand Oct. NBNZ Activity Outlook out at 25.5 vs. 29.3 in Sep.
• New Zealand Oct. NBNZ Business Confidence out at 17.2 vs. 17.0 in Sep.
• Germany Nov. GfK Consumer Confidence Survey out at 6.3 vs. 5.9 exp and vs. 6.1 in Oct.
• Switzerland Oct. KOF Swiss Leading Indicator out at 1.67 vs. 1.63 expected and vs. 1.68 in Sep.
• US Q3 preliminary GDP estimate out at 2.0% Annualized vs. 1.8% expected and vs. 1.3% in Q2
• US Q3 preliminary Personal Consumption out at 2.0% Annualized vs. 2.1% expected and vs. 1.5% in Q2
• US Oct. Final University of Michigan Confidence out at 82.6 vs. 83.1 in the original Oct. reading and 78.3 in Sep.

• Japan Sep. Retail Trade (Sun 2350)
• UK Oct. Hometrack Housing Survey (Mon 0001)