The US dollar sold off in response to the
Fed's lack of action, but it rebounded to close firmly before the weekend. For the week as a whole, it was mixed. The
Australian and New Zealand dollars were the strongest of the majors, advancing
1.3%-1.4% against the greenback. They extended those gains on Friday, even
though the dollar was firmer against most of the other majors.
The euro was the weakest of the majors,
losing about 0.35% against the dollar. The pre-weekend loss of about 1.4%
offset the earlier gains and a little bit more. The Swedish krona and Norwegian krone, like the euro, were higher for
the week before Friday when they gave it all back. They finished the week
down about half as much as the euro. Officials at the Swedish Riksbank
suggested inflation may have bottomed, but they do not want to see the krona
appreciated. Norway's central bank is likely to cut rates in the week
ahead to respond to slowing growth.
Before the weekend, the euro traded on
both sides of Thursday's range. It closed near its lows, but did not
close below Thursday's low, which would have been a stronger reversal pattern.
The euro's high of $1.1460 was just shy of
the 61.8% retracement of the euro’s decline from the Chinese-induced spike on
August 24 (~$1.1715) to the September 3 low (~$1.1087). A break of the
$1.1230 area now would confirm that the euro's advance since September 3 is
over.
With the Fed on hold, attention may shift
back to the ECB and the flexibility of its current asset purchase program. The euro has appreciated about 4% on a
trade-weighted basis since the middle of July and the price of Brent is about
20% lower over the same period. Neither is particularly helpful from the
ECB's perspective.
The dollar approached the lower end of its
recent range against the yen before the weekend, but recovered smartly, even
though strength in bonds and weakness in equities often hold it back. The yen gained about 0.5% on the week. The dollar's five-day average
crossed above the 20-day average for the first time in a month. In order to lift the dollar's technical tone,
however, it needs to move back above the band of resistance seen between
JPY120.80 and JPY121.35. While JPY119.00 held before the week, support in
the JPY118.60-JPY118.80 area is more important.
Sterling gained about 0.7% last week, but
the poor price action before the weekend warns of downside risks. It
appears to have traced out a shooting star candlestick pattern by rallying
strongly initially, reaching it best level since August 26 (~$1.5650), and then
sold off to close below the open and near its lows.
Sterling's high met the 61.8% retracement objective of the decline from the
year's high set on June 18 (~$1.5930) to the September 4 low (~$1.5165).
Initial support is seen near $1.5470, but
a breach of the $1.5400-$1.5415 area would be more significant from a technical
perspective. Although wage pressures
appear to be somewhat greater in the UK than the US, and there may be another
hawkish dissent at the October 8 MPC meeting, it is hard to envisage the BOE
lifting rates before the Fed.
The Australian dollar surpassed our
$0.7200 target last week, reaching a high
of $0.7280. However,
the failure to close above it on two attempts warns the upside momentum may be
fading. Confirmation requires a close below the five-day moving average,
which the Aussie has not done for two weeks. Its recovery over the past
few weeks dovetailed with the recovery in copper prices, which turned back down
before the weekend. On the upside a
move above $0.7300 would signal a move into the $0.7380-$0.7400 area.
The US dollar posted an outside up day
against the Canadian dollar before the weekend. Initially the greenback fell to a little below
CAD1.3015, its lowest level since August 13. It then recovered, trading
through the previous day's high (~CAD1.3205) and closed on its highs. The
drop in oil prices offset the smaller US premium over Canada on two-year money. Moreover, with the Fed on hold
for longer, some speculation is beginning to build that the Bank of Canada may
cut interest rates again. A move above CAD1.3240 would signal a return
to the upper end of the trading range found in the CAD1.3300-CAD1.3350 area.
In explaining the decline in oil prices,
most analysis has put more weight on supply than demand. However, one of the consequences of the Fed's
apparent dovishness was to raise concerns over demand. The front-month
November light crude oil futures contract finished the week essentially unchanged, but on a weak note.
It has held above the five-day average this month. A break of it
(~$44.30) could signal losses toward $43.20-$43.50. A break of that area
warns of losses toward $42. Technically, a move above the $47.50-$47.70
area is needed to lift outlook.
US 10-year yield fell 18 bp from the
mid-week high of 2.30%. At 2.13% at the close before
the weekend, it was about 5.5 bp lower on the week. It may be difficult for the yield
to break below the 2.05%-2.10% without some new spur.
The S&P 500 lost 0.15% last week. That is after the 3.3% (~67 points) drop from the post-Fed high to the
pre-weekend low. The technical tone is poor.
The price action suggests that the correction off the August 24 low is
complete. The S&P 500 has held above the 20-day moving average,
which is found near 1952 now. That is just below the trend line drawn off
the August 24 and September 4 lows. A loss of 1925 warns of the risk of a return to late-August lows near 1867.
Observations from the speculative
positioning in the futures market:
1. There were six significant (10k+ contracts) gross
speculative positions in the Commitment of Traders reporting week ending
September 15. The speculators cut their gross long euro holdings by 12.3k
contracts (~16%) to 63.4k contracts. They slashed their gross long yen
position by 26.7k contracts (~42%) to 36.4k contracts.
2. Speculators boosted their gross long Swiss franc position by 13.5k,
giving them 19.9k contracts (and enough to swing the net position to the long
side for the first time since late July. It was the largest percentage
term jump in the gross longs in a little more than two years. Speculators
also nearly doubled their gross long New Zealand dollar position. It rose
by 10.6k contracts to 22.5k.
3. Speculators covered 14.3k short sterling contracts, leaving 46.8k.
They also covered 16.8k short
Mexican peso contracts. They retained 77k gross short contracts.
4. Adding the New Zealand dollar futures to our currency
matrix, we tracked 16 gross speculative
positions. In the past week all but
five were reducing exposures. It appears the specs are trying to pick a
bottom to the Aussie and Kiwi. Speculators were lightening up on long euro and yen exposure into the rally.
Speculators began covering short sterling positions as the nine-day
losing streak ended on September 4,
though they were not inclined to bottom fish (extend gross longs).
5. The speculative net short 10-year Treasury
futures position grew for the third consecutive week, rising to 39.5k contracts
from 23.9k. This is despite the covering of 12.k gross short contracts
(to 419.6k). The bulls were more
aggressive, liquidating 27.7k contracts (to 380.1k).
6. Similarly in the oil futures, speculators reduced their
exposures. The longs were shaved by
4.3k contracts (to 485.8k) and the shorts
were slimmed by 12.3k contracts (to
246.4k). This resulted in an 8k increase in the net long position to
239.4k contracts.
15-Sep | Commitment of Traders | |||||
(speculative position in 000's of contracts) | ||||||
Net | Prior | Gross Long | Change | Gross Short | Change | |
Euro | -84.2 | -81.2 | 63.4 | -12.3 | 147.6 | -9.3 |
Yen | -26.8 | -6.7 | 36.4 | -26.7 | 63.3 | -4.4 |
Sterling | -3.6 | -17.6 | 43.2 | -0.3 | 46.8 | -14.3 |
Swiss Franc | 3.8 | -6.9 | 19.9 | 13.5 | 15.8 | 2.8 |
C$ | -47.1 | -48.6 | 28.5 | -1.0 | 75.6 | -2.6 |
A$ | -40.7 | -53.3 | 59.1 | 9.0 | 99.8 | -3.5 |
NZ$ | -2.1 | -11.8 | 22.5 | 10.6 | 24.6 | 1.1 |
Mexican Peso | -55.3 | -71.0 | 21.7 | -1.1 | 77.0 | -16.8 |
(CFTC, Bloomberg) |
disclaimer
The Fate of Dollar Bulls Post-Fed
Reviewed by Marc Chandler
on
September 19, 2015
Rating: