Looking for scraps of action in a quiet FX market

Otmane El Rhazi : Market volatility remains miserable, as my indicator on trading ranges for both EURUSD and USDJPY has registered fresh all-time record lows for the modern era. One wonders how long this can continue. USDJPY’s average true range (ATR) is about 0.43% against a previous record before this year of 0.50 percent in July of 2007. EURUSD’s ATR is down to 0.41 percent against a previous record of 0.45 percent. GBPUSD has also scratched out a record low trading range of similar magnitude as well. Thank you, world central bank central planning brigade, for your efforts to kill financial markets! Looking forward to the realisation that this doesn’t end well – but fumbling around in the dark for answers on how long the fuse to the detonation of a new era in financial markets begins. Consider what high profile investors Felic Zulauf, James Montier and David Iben think of the current situation and potential triggers that could interrupt the current “complacency malaise” to coin a phrase.

A thinly populated calendar awaits us today as we watch for things like:
  • Whether the USDCAD reversal yesterday on the weak Ivey PMI can extend (that was the first time since the global financial crisis that the usually mean-reverting survey posted two consecutive months of sub-50 readings. (Note the charts I posted in a squawk yesterday on USDCAD against the interest rate spread developments, which really shows how this market is not paying attention to this traditional fundamental metric). The pair has a lot more climbing to do to reverse the recent downtrend .
  • Whether this JPY strengthening move deepens – the USDJPY bounce is under fire if we head much lower as the 200-day moving average is in play at the moment and the EURJPY sell-off looks threatening. Elsewhere, GBPJPY is in danger of a full reversal if it cuts deeply through 174.00 (see chart below).
  • Whether it’s easy for data to surprise for at least half a session if it goes against the prevailing positioning and in that regard, GBP is likely more vulnerable to weak manufacturing data today and GBPUSD could punch down toward 1.7050 on a negative surprise.
  • Whether EURUSD can progress to the 1.3500 support and beyond. At this rate, we may have to wait until next week for the answer, though the focus remains lower.
Chart: GBPJPY
JPY crosses are a bit nervous as the USDJPY bounce in the wake of the strong US employment report last week has yet to see follow through and that pair is toying with the 200-day moving average. GBPJPY, meanwhile, is the only major JPY cross to take out new highs for the cycle as we look at UK production data today. A weak number could see some position clearing through 174.00 as this market is very long of GBP.

GBPJPY
Economic Data Highlights
  • New Zealand Q2 NZIER Business Opinion Survey out at 32 vs. 52 in Q1
  • Japan May Current Account Balance (Adjusted) out at +¥384.6B vs. +¥158.1B expected and +¥130.5B in Apr.
  • Australia Jun. NAB Business Confidence out at +8 vs. +7 in May
  • Australia Jun. NAB Business Conditions out at +2 vs. -1 in May
  • Japan Jun. Eco Watchers Survey – Current Conditions out at 47.7 vs. 48.9 expected and 45.1 in May
  • Japan Jun. Eco Watchers Survey – Outlook out at 53.3 vs. 54.5 expected and 53.8 in May
  • Germany May Trade Balance out at +17.8B vs. +16.2B expected and +17.2B in Apr.
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