USD Leads May Despite Last 3 Days

by Adam Button

Jun 3, 2013 0:21

A strong official PMI from China contrasted a weak reading on the sector from HSBC. Despite a three day slump to end the month, the US dollar was easily the best performer in May while the Australian dollar lagged badly. Weekly CFTC positioning data show growing AUD and CHF shorts. We reintroduced USDCHF after a long absence from the Premium Insights with 2 new trades and monthly and weekly charts. 1 EURUSD remain in progress as well as 3 USDJPY, 2 EURJPY, 2 USDCAD and 1 silver. For full detail, see latest Premium Insights.

The official manufacutring sentiment survey from China rose to 50.8 compared to 50.0 expected and 50.6 in April. The number could give the Australian dollar some respite to start the week but traders may be skeptical. The PMI earlier in the week from HSBC slipped to 49.6 from 50.4 in April.

There is also uncertainty about the US manufacturing. Signs were pointing to a worsening slump until Fridaywhen the Chicago PMI soared to 58.7 compared to 50.0 expected. In the span of a month, the index when from the lowest since 2009 to the highest since early 2012.

We caution that it's only one month and one data point but renewed strength from US factories would be another reason to buy the US dollar. The other data point on Friday was the PCE report, which showed core inflation up 1.1% compared to 1.0% y/y expected. Rising inflation could give the Fed an incentive to taper QE, which could be a major boost for the US dollar. One negative part of the report was personal spending, which fell 0.2% in April.   Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -85K vs -81K prior JPY -100K vs -95K prior GBP -75K vs -77K prior AUD -42K vs -32K prior CAD -33K vs -34K prior NZD +14K vs +18K prior CHF -29K vs -20K prior US Dollar Index longs at 46K vs 43K prior

The market has quietly built up the largest short position in CHF in 11 months. There are always rumors about hiking the EUR/CHF floor but it's mostly a trade on dollar strength and improving fundamentals in Europe.

Meanwhile, euro shorts are showing no sign of quitting even though more than half of the short position was initiate in the past two weeks – all of which are underwater. It's also interesting to note the lack of movement in NZD despite the rush in Australian dollar shorts. The carry is better in New Zealand but it's difficult to imagine the divergence continuing.

 

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Doubt After US GDP

Last week's +0.3% GDP figure in the UK was enough to make the pound the top performer last week in a sure sign of stagnant global growth. Then Friday's US growth figure missed by a half-point and dashed the near-term hopes of the USD/JPY bulls. This week opens a day later than usual in Japan as Golden Week holidays begin. 

The first quarter GDP report from the US was a disappointment with annualized growth at 2.5% compared to the 3.0% consensus. Consumer spending was unexpectedly strong but it wasn't enough to overshadow the drag from trade and inventory drawdowns.

USD/JPY fell immediately and continued to drop until stalling just ahead of the 21-day moving average at 97.55.

The week ahead could be unpredictable for yen crosses with Japanese desks understaffed. A portion of Friday's decline in USD/JPY was probably on position squaring ahead of the holidays. There is a line of thinking that Japanese firms will begin to re-allocate asset weightings offshore following the holidays. At some point this week, we could see traders buying USD/JPY to front run that move.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -34K vs -30K prior

JPY -80K vs -93K prior

GBP -60K vs -62K prior

AUD +31K vs +53K prior

CAD -72K vs -76K prior

NZD +28K vs +31K prior

CHF +1K vs -3K prior

US Dollar Index longs at 38K vs 50K prior

For the second week in a row, AUD traders backed out of long positions. Signs of a slowdown in China and the potential for an RBA rate cut are concerns but even with the large shift in positions, the Australian dollar hasn't weekend much since April 14.

Disclaimer The analysis we provide is based on the average estimate of price movements in one day. Does not guarantee what we deliver is actually a proper and correct. Everything that happens in the decisions you make on your trading transaction is to be Your responsibilities. Visit Us www.deryworldscorp.web.id Visit Us www.deryworldscorp.asia

Global Monetary Policy Rates – March 2013: Avg. Global Policy Rate Falls To 5.79% As Major Emerging Markets Cut

Global policy rates fell by a net 425 basis points during March as nine central banks – including four major emerging market central banks – cut rates, pushing the global average policy rate down to 5.79 percent at the end of the first quarter from 5.83 percent after the first two months.
    It was the size of the rate cuts by Mexico, Colombia and Poland – each by 50 basis points – that took observers by surprise, with the central banks attempting to give their economies a jolt to avoid disinflation becoming embedded.
    India was another major emerging market central bank that cut rates in March, though by an expected 25 basis points, as it is still struggling to dampen inflation amid a weakening economy.
    The cumulative 425 basis point cut in policy rates in March was sharply above February’s total  decline of 150 basis points and higher than January’s 342 points, signaling growing concern over the strength of global demand.
   Through March, global policy rates have fallen by 967 basis points, well below a cumulative fall of 2,162 after the first quarter of 2012, illustrating that rates are heading lower this year, though at a slower pace than last year, as many central banks take a wait-and-see approach to gauge the effect of last year’s substantial rate cuts, the depth of Europe’s recession and the impact of U.S. budget cuts.

INTEREST RATE CUTS, YEAR-TO-DATE IN BASIS POINTS, END-MARCH 2013:

COUNTRY	MSCI	CURRENT RATE	YTD CHANGE
BELARUS		28.50%	-150
KENYA	FM	9.50%	-150
COLOMBIA	EM	3.25%	-100
POLAND	EM	3.25%	-100
VIETNAM	FM	8.00%	-100
GEORGIA		4.50%	-75
HUNGARY	EM	5.00%	-75
MONGOLIA		11.50%	-75
INDIA	EM	7.50%	-50
JAMAICA		5.75%	-50
MEXICO	EM	4.00%	-50
ALBANIA		3.75%	-25
ANGOLA		10.00%	-25
AZERBAIJAN		4.75%	-25
MACEDONIA		3.50%	-25
W. AFRICAN STATES		3.75%	-25
BULGARIA	FM	0.01%	-2

Disclaimer The analysis we provide is based on the average estimate of price movements in one day. Does not guarantee what we deliver is actually a proper and correct. Everything that happens in the decisions you make on your trading transaction is to be Your responsibilities. Visit Us www.deryworldscorp.web.id Visit Us www.deryworldscorp.asia

TradeView FOREX : EURUSD OUTLOOK

The ECB said on Friday that banks will repay 137 billion euros in LTRO funding. The low-cost loans were used to finance bond buying and helped depress periphery yields. The repayment figure was higher than the roughly 100 billion euros that market participants were expecting.

The repayment begins this week and it raises some risks. Many banks were crowded in the 'Sarkozy trade' which was a carry trade into short-term periphery bonds. As this trade is reversed it could put upward pressure on 1-3 year yields. Gentle upward pressure would be euro-positive but a more abrupt risk could spark fears and a flight from the euro.

In Davos, comments from the ECB's Coene highlighted the changing priorities of the central bank as it slowly begins the march toward normalization. He said the ECB bond purchase pal would ideally be left unused. He added that the ECB could revise growth forecasts higher in March.

As the trading week begins, the lone data point to start the week on the Asian calendar is the Japanese corporate service price index for December. Economists forecast the measure will decline 0.5% year-over-year. This data point rarely moves the FX market.

Australian is closed for a holiday.

Commitments of Traders The weekly futures positioning data from the CFTC reflects the close last Tuesday. EUR net long 21K compared to +7K last week JPY net short 64K compared to -66K last week GBP net long 18K compared to +28K last week AUD net long 97K compared to +89K last week CAD net long 58K compared +69K last week CHF net long 6K compared to +13K last week

There are a couple takeaways. The market now comfortably long euros for the first time in years but it has been a slow process. Oftentimes a rally is easier to sustain when traders are slow and reluctant to join in.

It's a surprise to see the market long the pound despite the recent weakness. Although some indications are showing cable oversold, the continued net long position should give bears comfort.

Disclaimer The analysis we provide is based on the average estimate of price movements in one day. Does not guarantee what we deliver is actually a proper and correct. Everything that happens in the decisions you make on your trading transaction is to be Your responsibilities. Visit Us www.deryworldscorp.web.id

Tradeview Forex : Markets were looking for signals from Bernanke

The Fed Chairman stayed away from topics that might move markets in a speech late Monday. The kiwi was once again at the top of the leaderboard while the Swiss franc lagged. Japanese machine tool orders are the lone item to watch for in Asia-Pacific trading as Japan returns from holiday.

Markets were looking for signals from Bernanke about when monthly QE programs would begin to taper but his comments were bland. He emphasized the need for a Congressional debt limit deal and the most-insightful comment was probably that he was 'cautiously optimistic' on the economy. Markets didn't react.

Earlier in the day, regional Fed presidents Lockhart and Williams said they were comfortable with the current status quo.  Williams forecast 2.5% growth this year and Lockhart 2-2.5%. Other Fed members have recently forecast growth faster than 3%.

The euro was effectively unchanged on the day at 1.3375. In a sense, the stability is impressive because Spanish 10-year yields rose 14 basis points on the day to 5.03%. It could also be a sign that the daily correlation between periphery yields and the euro is weakening.

Japanese markets reopen on Tuesday after a long weekend. The fresh liquidity could increase volatility. The preliminary December report on machine tool orders is also due at 0100 GMT. Orders should rebound after a 21.3% drop in November.

Disclaimer The analysis we provide is based on the average estimate of price movements in one day. Does not guarantee what we deliver is actually a proper and correct. Everything that happens in the decisions you make on your trading transaction is to be Your responsibilities. Visit Us www.deryworldscorp.web.id