Risk currencies leave themselves vulnerable

The lack of headlines and market moving data releases underpinned today’s weak price action. Also, a bank holiday in Australia kept some players out of the market, causing liquidity to suffer. During times of low volume, risk currencies tend to perform better than they otherwise would, and today was no expectation considering the possibility for USD gains. Whilst commodity currencies didn’t build on Friday’s gains on the back of the better than expected US NFP data (even though the unemployment rate ticked higher, it was marginal), they managed to avoid a significant retracement, which considering the nervousness leading up to a speech by Fed Chairman Bernanke, we take as a win for risk.



The rally away from the dollar following Friday’s NFP data was a risk-on move. Hence, investors left the relative safety of so-called safe haven assets. However, in doing so investors left themselves open to a possible push towards USD if the fed becomes more bullish on the US economy as a result of the NFP data which would, in turn, make them less likely to engage in another round of QE. But this is not a certainty, despite the push higher in USDJPY (which shows us that with risk taken out the equation the US dollar has gained attractiveness following Friday’s US employment report). In fact, we don’t expect an overly hawkish tone from the Fed Chairman Bernanke tonight. Instead, we think the Chairman will choose his words very carefully to avoid an overreaction by the market.



Elsewhere, the RBA is meeting tomorrow to decide the future of Australia’s monetary policy. Most economists, and investors for that matter, appear to be leaning more towards an unchanged policy stance from the bank. In particular, current interbank futures pricing suggests that there is over an 80% chance the bank will not move. Yet, it was not that long ago – two weeks ago in fact – that market pricing was split, with only around 50% of a 25 bps cut priced into interbank futures.



So, what has changed between two weeks ago and now? Domestically, data has been mostly better than expected. Today, data releases showed that job advertisements are falling less than previous (-0.8% vs. revised -1.1%). Earlier, house prices, retail sales, building approvals and trade balance data all beat economists’ estimates. In fact, inflation appears to be the only thing lagging behind, with month-on-month Q2 CPI data printing at +0.5%, slightly lower than the expected +0.6%. Whilst inflation is a key concern of the RBA’s, it may take a backseat to other economic data as the bank attempts to gauge the impact of previous rate cuts. Overall, we expect the RBA to keep the cash rate at 3.5% and increase its outlook on the domestic economy.



Price Action



EURUSD initially tested a resistance level around 1.2450, before dropping back below 1.2400 amidst sideways price action through the rest of the FX market, with the exception of the yen. USDJPY looked very jittery all session following on from its big push higher on the back of the NFP report.



Gold held its ground above USD1600 and manage to push through a small resistance level around USD1607.00. But the pair is still vulnerable, especially if the market enters a risk-off mode (assuming it’s not because of deteriorating US data). In this case, the usual flow to USD as a safe haven trade may be amplified by the decreased chance of QE3, as highlighted by Friday’s US employment report.

Источник: Forex.com

04.08.2012