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Trouble in Commdollar Paradise?

Last updated 10/13/2009 5:54 AM ET (GMT -5) 9 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• New Zealand Retail Sales Blow Out Estimates 1.2% vs. 0.5%
• UK BRC, RICS all show material improvements but pound suffers as CPI sinks
• Asia higher in catch up, Europe opens lower
• Oil at $73/bbl
• Gold steady at $1055/oz

Overnight Eco

• NZD Retail Sales much better 1.2% vs. 0.5%
• GBP BRC Retail Sales Monitor 2.8% vs. -0.1%
• GBP RICS House Price Balance 22% vs. 15.1%
• JPY Bank Lending 1.6% vs. 1.8%
• JPY M2 Money Stock 3.0% vs. 2.9%
• AUD NAB Business Confidence slips to 14 from 18
• CHF PPI 0.2% vs. 0.1%
• GBP CPI colder at 1.2% vs. 1.4%
• GBP DCLG HPI -5.6% vs. -4.9%
• EUR German ZEW Economic Sentiment 56.0 vs. 58.6

Event Risk on Tap

• CAD NHPI expected at 0.2%
• USD IBD/TIPP Economic Optimism expected at 53.7

Price Action

• USD/JPY hugs 90.00 all night long
• AUD/USD runs to .9080 as 9100 in view
• GBP/USD hammered to 1.5715 on weak CPI but rebounds slightly
• EUR/USD 1.4800 caps as ZEW misses

A very quiet rangebound night in the currency market with most of the majors holding around their NY closing levels as eco data both in Europe and UK  offered little fresh news to the market.  The one exception to tonight’s lackluster trade was the New Zealand dollar which popped to .7400  on the back of much stronger than expected Retail Sales which printed at 1.2% versus 0.5% eyed. New Zealand, much like Australia has benefited mightily from Asian demand for commodities and currency traders speculated that it may be the next advanced industrialized nation to raise its overnight rates, possibly before the end of this year.

Despite, rising to .7400 the kiwi met heavy resistance at that level and fell back to .7450 as the night progressed. One cloud on the horizon for the long commdollar thesis is the   fact that lending in China has slowed to a crawl hitting a new low in September of 110 billion yuan (from 166 billion in August) with the Bank of China disbursing only 3 billion yuan from 72.2 billion in August. Meanwhile the Australian NAB survey of business confidence declined to 14 from 18 the month prior – the first such drop since May. If China sees even a minor slowdown in demand as Q4 unfolds, the mews would augur badly for the two Anglo-Saxon economies in the Asia Pacific  region intrinsically tied to Chinese demand. With both Aussie and kiwi heavily overbought any slight doubt in the market could trigger a sharp profit taking sell off.

In UK the CPI numbers printed colder than expected at 1.2% vs. 1.4% eyed. As we noted earlier, “The news …supports the notion put forth yesterday by the Centre for Economics and Business Research that UK rates will remain at 0.5% through 2011 and will rise only to 2% by 2014.” Pound continues to be one of the worst performing majors in the G-10  universe but for the time being the eco data offers traders no reason to own the currency. However, if tomorrow’s retail sales data and claimant count report surprise to the upside, the unit could see a short covering rally given its grossly oversold condition.

Finally in Eurozone the ZEW survey slightly disappointed printing at 56.0 versus 58.6 eyed as concerns over the impact of rising euro on the key export sector weighed on investor sentiment. Exports declined in August  for the first time since Q1 of 2009 suggesting that the relentless rise in the EUR/USD is becoming a drag on the recovery. The EUR/USD tumbled 20 points in the aftermath of the release but quickly rebounded as ZEW data is rarely market moving. Next week’s IFO report will be a much more important test of the economic condition in the EZ, but for now the news suggests that momentum in the recovery has stalled.

With no major releases on the calendar  the North American session will likely be driven by equity flows and earnings news. Although the risk on/risk off trade continues to permeate the markets its impact is becoming less powerful by the day. Yesterday the Dow hit intraday highs, but the EUR/USD could not match the move.  We continue to believe that the buck may bounce this week, and tonight’s  weaker than expected eco data from Europe should provide further support for dollar bulls.    

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Comments (9)

FXDragon

October 13, 2009 at 06:07 AM ET

We believe buck rally take place close to end of month. Lets see how this bet goes...

bschlossberg

October 13, 2009 at 07:16 AM ET

I may be premature here we'll see

Vstocks

October 13, 2009 at 10:10 AM ET

HI Boris,
I think if correction happens the pair to be in is EUR/USD, but what do think be the driver of dollar against Yen?
Much appreciated.

Vstocks

October 13, 2009 at 10:11 AM ET

HI Boris,
I think if correction happens the pair to be in is EUR/USD, but what do you think be the driver of dollar against Yen?
Much appreciated.

Arturas

October 13, 2009 at 11:28 AM ET

USD/JPY is rising because of hopes that hawkish FED may raise interest rate sooner than it was expected earlier. Also, there's a chance that Japanese exporters started to hedge on 88 level. Finally, this pair was quite overbought during that couple of months. It makes sense to buy low - sell high...

bschlossberg

October 13, 2009 at 11:31 AM ET

I agree . If retail prints strongly tomorrow usd[py will barrel through 90.00 with force

jojoba

October 13, 2009 at 12:00 PM ET

Technical Analysis on USD/JPY daily chart: Double bottom present. Break above 98.20 will confirm an uptrend.

Arturas

October 13, 2009 at 12:06 PM ET

http://www.ipix.lt/images/72624400.gif

I made it on Sunday, it is still valid

bschlossberg

October 13, 2009 at 04:35 PM ET

98.20 is a long way away. lets see how we trade past 90.00 first

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.