Overview of near-term dollar outlook.
The primary trend of the AUD is down. Bernanke has provided us the opportunity to sell the rally and profit from a primary trend continuation.
The Fed is among the only major central banks not meeting next week, yet it is overshadowing the others. The dollar's tone improved markedly in recent days. There is still scope for the Fed to disappoint the dollar bulls.
Quick, dispassionate overview of the fx market.
As Australia's Leading economic index data hit, printing 0.0% for its lowest level in 13 months, AUDJPY fell out of bed with a thump and snapped carry-trades that were holding Asian stocks near unch early on. The Nikkei 225 fell over 250 points from its post-US close highs. The Aussie data combined with news that Fukushima was being raised to a Level 3 'incident' is escalating the JPY move (and dragging Nikkei -11.5% from its 7/18 dead-cat-bounce highs). Asian FX is fading once again (though KRW and TWD are modestly bid) led by IDR and THB. Indonesian stocks are also suffering as the currency has devalued almost 7% in the last 4 days and dropped by its most since Lehman tonight. Chinese stocks are siding fast led by Everbright which has now fallen 17% since it re-opened for trading yesterday. S&P futures are -3 from the US close (down over 9 points from the intraday highs) and Treasury futures have rallied back to unch from a modest dip earlier in the Asian session.
UPDATE: Everbright Securities (the Chinese fat-finger stock brokerage) just announced they SNAFU'd again - this time by 'mistakenly' selling 10Y government bonds at 4.2%
AsiaPac and EM markets are awash with red this evening. While Japanese stocks are very modestly higher on the bad-news-is-good-news that Abe's economy saw the third largest trade deficit on record (dramatically worse at over JPY1tn than expectations of JPY773), most of the rest of the overnight markets (including US Treasuries) are in the red. From plunging Aussie vehicle sales data (-3.5% from +4.0% in the prior month, to a -0.3% QoQ print for Thailand's GDP (confirming recession as opposed to expectations of a +0.2% gain); and from Indonesian current account deficit (and currency depreciation) concerns smashing stocks -4.0% (most since Oct 2011) to the ongoing collapse in India currency, bond, and now equity markets, all is not well ahead of the European open. Chinese stocks are also down for the fourth day in a row as Friday's fat-finger concerns drive brokers down hard and spike 7-day repo rates.
Anticipation of Fed tapering is being cited for both dollar gains and dollar losses. What gives?
Short-term, dollar risks still appear on the downside, but this appears largely corrective in nature. Medium-term, a higher dollar still appears to be the most likely scenario.
It seems I arrived in New Zealand just in time to see the country implode over a bit of botulism and bad PR. Good thing I haven't converted all my dollars into kiwis just yet!
Discussion of recent and prospective price action in the foreign exchange market.
UPDATE: China HSBC PMI prints 47.7 - same as Flash - for worst 4-month decline in 3 years
Following Japan's disappointing PMI last night, and after some 'hope' in June, Aussie PMI collapsed from an almost 'recovering' 49.6 to 42.0 with only 1 in 12 industries expanding and production, employment, and new orders all falling further into contraction. Then came a formerly consistent bellwether of the global recovery (until of course it started to fall when it became irrelevant) - South Korea's PMI tumbled to 47.2 (from 49.4) - its lowest since Sept 2012 (and falling for the 3rd month in a row) and employment down the fastest in 17 months. Then after the early Flash HSBC PMI printed at 11-month lows (final HSBC PMI shortly) and firmly in contraction, China's official PMI just arrived at a perfectly 'reasonable' 50.3 (highest in 2 months) and well ahead of a contractionary 49.8 expectation. Remember this is the same data whose subsets were temporarily (and then permanently) removed last month. This is the widest disparity from HSBC's measure in 15 months.
Overview of currency market outlook.
Bernanke's comments washed out some late dollar longs and they may be reluctant to re-establish ahead of the Chairman's testimony before Congress at the end of next week. The underlying bullish case for the dollar remains intact.
Increasing concerns over deflation will limit any QE tapering in the second-half and set the stage for bonds to outperform stocks once again.
Brief discussion of the price action that is lifting the dollar at expense of nearly every other currency.