As was probably expected, yesterday did not exactly capture the imagination, the European session struggled with Germany being on holiday and perhaps the US were suffering the hang over after regaining the Ryder Cup.
Dean's Daily FX Update – 04 October 2016
Of the major fundamental data, we had stronger manufacturing data and also very strong car sales. The construction spending was surprisingly weak and this led to the GDP tracker to be forecasted lower. We had some Fed chatter again from Dudley and Mester but once again it was conflicting, the market brushed it off – perhaps getting bored of the Fed.
Of the major pairs only the CAD managed to make any in roads, although much of the hard yards were given back yesterday evening. The continuation of selling in the pair from Friday would have been anticipated after the OPEC countries announced a possible output restriction. The oil price seems to be running out of momentum this morning and this is probably the reason we encountered the sharp reversal – watch for the USD to regain its “mojo” this morning against the CAD.
On the other end of the spectrum the GBP had another shocker, speculation is rife that PM May will consider the UK invoking Article 50 as early as March 2017. The London session was characterised by a bout of selling, although the US session gave the pair a little respite. I would be cautious trading the pair just yet, with Germany back in the market this morning we could see some action in the EURGBP which would inevitably weaken the GBPUSD further.
The EURUSD was a non-event, no doubt due to the German holiday and the range was a mere 35 pips. Importantly though is that last night we traded below major support levels, a sustained push below the 1.1200 level is bearish for this pair.
RBA governor Lowe left interest rates on hold and it is the nuances of his first speech that I am more concerned about. If I have to look at the last meeting I would expect much of the same, the speech to be fairly neutral. For a market that is pricing in a rate cut in December this would be less dovish and we could possibly see the AUD have a short rally. This could mean we push higher than 0.7690 but I think that 0.7700 – 0.7730 will be key levels for possible short set ups.
Things of importance to look out for today:
GBP PMI Data
NZD GDT Index
Fundamentally, the ISM manufacturing date showed a nice rebound from the < 50 reading last month (was 49.4). The value this month was not only > 50 again but also beat estimates at 51.5 vs 50.3. Good news.
Construction spending was not so hot as it fell by -0.7% vs +0.3%. Moreover the prior month was revised lower to -0.3% from 0.0%. When the Atlanta Fed GDP now estimate for 3Q came out at 2.2% from 2.4%, they cited the lower construction spending. The GDP tracker has now moved from a high of 3.8% back on August 5th, to 2.2% today. Since September 2nd, when there was an uptick to 3.5% from 3.2% after employment and trade, there has been a steady decline. September data has proven to not be so hot for 3Q GDP.
In other data today, car sales were robust at 17.65M annualized units. That was better than the 16.91 prior but the numbers may have been impacted by heavy discounts.
IN Fed speak today, Fed's Mester favours moving rates up gradually while Fed's Dudley said that monetary policy remained accommodative. It is not like we have not heard those exact same words being said over the last few years.
The new day will bring an interest rate statement from the RBA. Governor Lowe will preside over his first meeting and the chance of a change is near 0%. Traders will be focused on the nuances of the statement and the technicals (see post on the levels to eye here). The bias is more bullish above 0.7650-60 (100 and 200 hour MAs) A move below, is more bearish for the pair.
Hope you have a great new day of trading!
High Risk Investment Warning: Trading foreign exchange and/or contracts for difference on margin carries a high level of risk, and may not be suitable for all investors. The possibility exists that you could sustain a loss in excess of your deposited funds and therefore, you should not speculate with capital that you cannot afford to lose. Before deciding to trade the products offered by BlackStone Futures you should carefully consider your objectives, financial situation, needs and level of experience. You should be aware of all the risks associated with trading on margin. BlackStone Futures provides general advice that does not take into account your objectives, financial situation or needs. The content of this Website must not be construed as personal advice. BlackStone Futures recommends you seek advice from a separate financial advisor. Please take the time to read our Risk Disclosure Notice.
