It has been a strong week for the USD, which according to the DI, has moved up about 100 points to 82.20. As we approach the end of the day, the trade seems to slowing. Best remember, though, it is also the end of the month when sometimes there is peculiar activity.
Part of the week's strength can be attributed to the continued positive economic news in the US. Early in the week, the US Consumer Confidence level rose from an expected level of 79.5 to 81. Pending home sales were less than expectations, but the Annualized GDP on a quarterly basis at 2.5% was better than expected.
The possibility the Syrian civil war was about to expand beyond its borders was another concern this week. Equities markets in the US and Europe have also responded negatively. Late in the week, the oil market, another barometer of the Syrian crisis, did retreat. Some pundits attribute the USD strength this week to demand from safe haven buyers.
How will this play out going forward? The British Parliament has voted against an attack. In the US, given the chance to vote, the House of Representatives might well vote against an attack. Chances for a US strike remain, but the longer the strike is deferred, chances of an attack would be reduced. This would probably be USD negative, as the USD loses any safe haven premium.
There will be some meaningful US reports next week. On Tuesday, the ISM Manufacturing Survey comes out, expected to be 54, down from 55.4 last week. On the next day, we get the US Trade Balance. This is expected to be -$38.7B, up from last month's small -$34.2B. Finally on Friday, we get the US unemployment report, expected to be unchanged at 7.4%, and the NFP Report, expected to be 180K, up from 162K.
As we mentioned yesterday, the euro ( FXE, UUP, UDN, EURUSD) had its first negative week since the middle of July. That loss was extended to the 1.32 handle today, and was unable to bounce much later in the day. Some of the highlights of next week's euro data commence Monday with the manufacturing PMI, expected to be unchanged at 51.3. On Wednesday, the y/y GDP is announced. This is expected to be unchanged at a negative 0.7%.
This will be followed on Thursday by the results of the ECB policy meeting and their bank rate decision. The rate is expected to remain unchanged at 0.5%. A press conference with ECB President Draghi follows. Just as the sign on the bar that promised "Free Beer Tomorrow," and tomorrow never comes, look for Draghi to promise economic growth is coming to Europe, hopefully next quarter, but certainly by next year.
We remain negative on the euro and are hopeful to sell a bounce.
In the futures market, the currency with the second biggest open interest after the euro is the Australian dollar. Looking at the weekly chart, the bears are in command here. Yes, the COT report shows they are near record shorts, but they are making money.
There are some interesting aussie related reports next week. During the weekend, we get the Chinese Manufacturing PMI, expected to be up to 50.6 from 50.3. On Monday, the Australian retail sales is announced. It is expected to be up 0.4% after 0.0 in the last report. This will be followed on Tuesday with the bank rate decision, which is expected to remain unchanged at 2.5%. The Q/Q GDP is expected to remain unchanged at a positive 0.6%. Finally on Friday, there is the Australian election.
There is probably no reason to initiate new trades here except the short side is over loaded. Also, if the RBA does keep the interest rate unchanged, this removes a potential worry. Finally, will the general election mean anything to a market, which has been under pressure for since April?
Trade in the yen remains active, and the market remains loaded with spec shorts. As we pointed out earlier n the week, the price action appears to be coiling into a triangle, perhaps headed for a breakout. But which way? Aside from the Bank of Japan interest rate decision on Thursday, there does not appear to be any high impact reports.