By Dean Popplewell
Together this is still a EUR seller's market despite the news drought. It's not a surprise that the summer doldrums have taken hold of the single unit in Asia with the bulk of the action again confined to a narrow thirty pip range. Europe stop loss exploitation is a different matter. A lack of anything newsworthy on the eurozone crisis leaves the market to weigh up the chances of ECB and Fed stimulus. Did yesterday’s U.S. sales data kill QE3 talks or will we have to wait for the next employment data for solid direction? Overall, despite the lack of participation, this is very much a jobber's market, buy low sell high or sell high buy low, you must remember this, the traditional way to improve your overall position average. The overall environment is still very much a EUR sell mentality.
Market thinking has the single currency increasingly favored as a “the” go to funding currency of choice. This would imply that the correlation between the EUR and intraday risk measures would and should continue to break down or reverse. With the current ongoing environment, it should become increasingly common to experience more trading sessions where the EUR benefits from broad short covering as risk trades are exited and days where the EUR loses ground broadly as risk appetite improves. The EUR is now experiencing more of the yen attributes of days gone past, specifically when it dominated the market funding role.
With little to chew on this morning, the BoE and GBP had the markets full attention before we shift focus towards the North American session. U.K. unemployment claimant count measures fell last month by -5.9K with the previous month revised higher by only +1k rather than the +6.1k initial release. Analysts note that the Olympics has clearly had a positive affect on the headline, but the fall could have been larger had it not been for the changes in the benefit system. More woman were likely added to the claimant count measures as they move from lone parent support (after cuts) to bob seeker's allowance. Despite the negative U.K. labor outlook the overall U.K. economy continues to move sideways.
The BoE minutes suggested that the U.K. economy may not be as weak as Q2 growth figures suggest and that a new lending scheme would be to boost activity in H2. The MPC voted unanimously to maintain the size of the BoE’s bond-buying stimulus program at +375b and to keep its key interest rates at +0.5%. However, Governor King seems to be trying to talk down the pound with his comments following the release of the minutes. Again, he has firmly reiterated that the risks from the eurozone debt crisis remains substantial and said the pound's “recent strength outright versus the EUR weakens rebalancing risks.” The initial reaction for Cable after the MPC release was to ascend towards 1.57, now let's see if King’s comments have any weight or perhaps sterling is still seen as the “best of a bad lot.”
Today’s Empire Fed manufacturing is the month's first benchmark in the states. Market consensus expects a stable reading after July’s slight anomaly, a big bounce. The U.S. IP print is expected to record another solid monthly gain mostly due to the weather. Analysts and the market will be leaning towards the data providing support for further recovery in risk sentiment. However, this will only muddy the water even more for prospects of a QE3 Fed program next month. Last month's CPI numbers are expected to remain in its subdued state.
The overall market remains relatively short in anticipation of deeper losses in the coming sessions. However, the weaker of these positions are slowly being squeezed. The retail sector sits somewhat neutral, with a larger outright interest demand off the pace at 1.23 and heft s/l’s below that. Neutral sells appear at 1.2385 trough 1.2410, just ahead of more market stop-losses parked above 1.2420. Medium term bias continues to look to the downside, however, these lofty heights are beginning to become uninspiring.