Could the euro rally on a 10-15 bp cut in key rates? Technical indicators suggest this may be likely.
The near-term outlook for the US dollar appears to be improving. Here is why.
As we noted in the pre-open this morning, with the weekend just around the corner, it was virtually assured that the S&P would close at an all time high today - after all the people need to be confident when they go shopping at malls with money they don't have (but delighted by paper profits they haven't booked) so they boost the US non-GAAP GDP (at least before the BEA too, like Italy, changes the definition of GDP to include cocaine and hookers). Finally, assuring a (likely record) low-volume levitation today is the early closure of the bond pit ahead of Memorial Day holiday which also means only a skeleton crew of algos will be frontrunning each other to push the S&P over 1,900. Summing it all up perfectly - VIX closed at 15-month lows, Russell 2000 had its best week in 3 months, and Treasury yields are 13bps lower than when the S&P was last here... un-rigged.
Here is the technical reasons why the euro, sterling and Swiss franc retreat is a likely a correction rather than a change of the underlying trend. US 10-year yields near lows and a recovery could lift the greenback vs JPY.
Despite Mario Draghi and Janet Yellen's (repeat) attempt to steal the show today, the first when the ECB reports its monetary decision (with zero real chance of announcing any change in policy considering all the furious, and failed, attempts to jawbone the Euro lower) as it faces the dilemma of deflationary pressure, record low bond yields and interest rates at record lows coupled with an export crushing Euro just shy of 1.40, and a practical impossibility to conduct QE even as the hawks jawbone a "potential" European QE to death, while Janet Yellen conducts the second part of the congressional testimony this time before the Senate Budget Committee where she will again, say nothing at all, it appears the world will be focused on Russia once again after the latest 24 hour "de-escalation" gambit is now once again dead and buried and on top of it is Putin waving a "come launch a nuclear attack at me, bro" flag.
Some thoughts about the price action, or lack thereof, in the foreign exchange market.
On the heels of disappointing March data in China for Services and Manufacturing, China's "official" manufacturing PMI saw its lowest 'April' print on record (typically a period of renaissance post-New Year data snafus) missing expectations for the first time in 2014 and just marginally above last month's data (50.4, exp. 50.5, prev. 50.3) China is still in Schrodinger-land with "official' data (biased towards larger SOEs) in very modest expansion and Markit (weighted towards smaller - more realistic - entities) in considerable contraction. That China disappointment follows earlier data which saw Aussie PMI collapsed over 3 points in April to its lowest in 9 months with the deterioration broad-based across the key sub-components. As Goldman notes, production is now at its weakest in a year, employment remains in contraction and, most worryingly, new orders printed their largest contraction in 13 months. This is the 6th month in a row of Aussie manufacturing contraction.
It is not true that there has been a secret protocol, reintroducing fixed exchange rates, though the lackluster price action in the foreign exchange market and the continued erosion of volatility make it feel almost like it.
Outlook for the major currencies in the week ahead.
Outlook for the dollar in the week ahead.
For the 4th month in a row, China's composite PMI fell (with new orders tumbling) - this time to the lowest levels since Nov 2011 and firmly in contractionary territory. However, in the exact antithesis of the manufacturing PMI data, tonight's non-manufacturing data saw the official government data miss expectations and drop (manufacturing rose) while HSBC's services PMI rose (HSBC's manufacturing dropped). This was enough (along with an Aussie retail data miss) to send AUDJPY into conniptions jerking lower then higher then lower as the algos just could not comprehend the levels of absurdity that was flooding their valves. Japanese PMI strolled along in its neither here nor there zone and Aussie PMI tumbled back into contraction after one month of exuberance. In the famous words of Frank Valli, oh what a night.
A look at the price action in the foreign exchange market, within the context of fundamenal developments.
Thirsty Californians are pinning their hopes that worried farmers in Australia are right. After months of the Polar Vortex dumping snow on the US east coast and drought on the west coast (and crushing the American Dream of an 'escape velocity' economy), The US Climate Prediction Center issued an El Nino watch bring hope of a big rain year for California, floods in South America, and dismal droughts in Southeast Asia. The Australian Bureau of Meteorology said an El Nino could occur during the southern hemisphere winter from May-July. Increased sea surface temperatures suggest an increasing chance of the global weather phenomenon and the great rotation from a Polar Vortex to a Solar Vortex.
While every other asset class in the world has now been found to be subject to some form of manipulation (from LIBOR rates to FX fixes and from commodity warehousing to HFT equity front-running), the stakes in a COMEX silver/gold/copper manipulation lawsuit are staggering. Not only is market manipulation the most serious market crime possible, the markets that have been manipulated and the number of those injured are enormous. It is likely not an exaggeration to say that any finding that JPMorgan and the COMEX did manipulate prices as we contend could very well result in the highest damage awards in history. That’s no small thing considering the tens of billions of dollars that JPMorgan has coughed up recently for infractions in just about every line of their business. Our point is that no legal case could be potentially more lucrative or attention getting than this one. It is clear the CFTC will never act and so class-action lawsuits may just be the only way the data is du into deep enough to uncover the truth.
An overview of the technical condition of the major currencies.