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Key FX Market Events In The Coming Week: Grand Plan In Europe, Asian Intervention And Broader USD Strength

Tyler Durden's picture




 

Goldman summarizes the key events in the coming week:

After many weeks of sluggish FX response to the risky asset weakness, last week finally marked a change. The trade weighted USD strengthened markedly, mainly on the back of a move relative to EM currencies. When looking in a more quantitative way at this development, we notice a rapidly rising beta when regressing changes in the trade weighted Dollar on changes in the SPX. For most of August and the first half of September, the beta was about 0.1, meaning a 10% decline in the SPX translated into a 1% rise in the trade weighted Dollar. This has now doubled where a 10% decline in stocks pushes the Dollar up by 2%. Not unexpectedly, therefore, we also got stopped out of our long-standing long EUR/$ recommendation.

This increase in FX sensitivity occurred against the backdrop of ongoing uncertainty regarding the Greek and Eurozone sovereign situation. The preliminary Eurozone PMIs last week indicated that the financial market jitters in recent months continue to put downside pressure on business sentiment.

Over the weekend, the G20/IMF/Worldbank meetings produced the expected stream of policymaker comments with most of the focus on the Eurozone. There is now considerable external pressure on Eurozone policymakers to finds ways to contain the crisis. As Huw Pill and Francesco Garzarelli have pointed out in two notes published on Sunday (September 25), despite much speculation, the likelihood for very fast action remains low. The ratification process of the July 21 summit agreement cannot be short-circuited.

In the upcoming week, debate and speculation about any “grand” Eurozone plan will certainly dominate FX markets and risk sentiment. We are cautious. On one hand, we continue to believe that USD downside pressures remain the dominating medium trend in FX, and hence the current rise in risk premia creates attractive opportunities to position for renewed US weakness. On the other, we still see plenty of Eurozone headline risk. For example, the tug-of-war over the next Greek tranche will likely continue for at least another 10 days. And important parliamentary votes are still outstanding in a number of EMU nations, in particular those with unclear majorities to implement the enhanced EFSF.

The second key development in FX markets will be the reaction of Asian central banks to the intense depreciation pressures. A number of EM central banks intervened in the second half of last week, and in the upcoming week markets will try to gauge the determination to intervene again to dampen or even block the sell off in many crosses, in particular in NJA.

Key macro data this week are business surveys, specifically the Chicago PMI and the German ifo. US durable good data is a timely activity indicator as well. Finally, we would have a look at Germany CPI data, as inflation trends in the Eurozone core could add to the multiple challenges faced by the ECB.

Key data points in the upcoming week:

Monday, September 26th: German Ifo

Tuesday 27th: US consumer sentiment, Richmond Fed index

Wednesday 28th: German CPI, US durable goods

Thursday 29th: US unemployment claims, UK consumer confidence

Friday 30th: Japan IP, Chicago PMI

 

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Mon, 09/26/2011 - 02:48 | 1709736 winter is coming
winter is coming's picture

thursday should be fun

Mon, 09/26/2011 - 02:56 | 1709749 Flatchestynerdette
Flatchestynerdette's picture

Obviously, Goldman took an easy out: over the weekend the UK Telegraph website had a headline: "Christine Lagarde -IMF may need billions in more funding". BTW: Who does she pick up the phone to call?

Mon, 09/26/2011 - 02:56 | 1709758 Squid-puppets a...
Squid-puppets a-go-go's picture

who does she call?

Me. And i tell her she's a dirty capitalist whore and she loves it

Mon, 09/26/2011 - 02:57 | 1709756 SunBlaster
SunBlaster's picture

Ok, thanks for the week heads up.? I know there is some sort of big Euro pump by Ben in mid of October, but by any chance we might see something sooner? Like an emergency printing announcement? Even though Europe sees no fast action at this point?

Mon, 09/26/2011 - 03:07 | 1709786 Who is John Galt
Who is John Galt's picture

The Chinese are laughing their asses off buying gold at these prices.

CHINESE GOLD BUGS BITCHEZ!

 

HAHAHAHA

Mon, 09/26/2011 - 03:19 | 1709816 Ghordius
Ghordius's picture

Grand” Eurozone plan ???

“Grand” Eurozone plan ???

 

LOL - this while TBTF is readjusting the markets to USD cash?

LOL - any "Grand" Eurozone plan would include the nationalization of the big EU banks - for this to happen we have to go further down the drain...

Mon, 09/26/2011 - 03:22 | 1709820 ivana
ivana's picture

with or without plan, banksters and their puppets have agenda and they will follow it up.

Greatest scam circus ever arrived in EU

Mon, 09/26/2011 - 03:32 | 1709847 DrStrangelove
DrStrangelove's picture

http://nationaleconomist.blogspot.com/2011/09/just-another-day-on-wall-s...

 

Just another day on Wall Street with police attacking protesters.

There will be no dissent, there will be no outrage, there will be no opposition... war is peace and freedom is slavery.

 

These slaves don't know how to take a beating and shut up already.  BRAINWASHING IN PROGRESS.

 

 

 

 

 

http://nationaleconomist.blogspot.com/2011/09/just-another-day-on-wall-s...

Mon, 09/26/2011 - 03:32 | 1709848 Peter K
Peter K's picture

The weak dollar can only help one less than effective, unproven, nacissistic, neandrathal in chief, at his pathetic attempt to get reelected so that he can finish this transformative redistributionist agenda to make the remaining super power's economy resemble that of.... wait for it.... NKorea. Hey, but at least everyone will have equally poverty stricken:).

Mon, 09/26/2011 - 03:38 | 1709858 props2009
props2009's picture

All premium analysis from Capital

 

Short Gold hits targets at 1760 hits target at 1703.

Long Gold at 1545 hits target

 

http://capital3x.com/?p=1992

 

Long USDCAD hits target 1.0380

Short AUD/USD hits target at .9950

 

Mon, 09/26/2011 - 03:39 | 1709861 scatterbrains
scatterbrains's picture

Tyler can you post a 4 or 5 year silver/copper spread chart so these knife catchers can get some perspective on when it might be time add to silver again?  We still have a good ways to go I'm thinking.

Mon, 09/26/2011 - 03:59 | 1709947 slewie the pi-rat
slewie the pi-rat's picture

fuk the banks!

Mon, 09/26/2011 - 04:30 | 1710084 phi-in-the-sky
phi-in-the-sky's picture

these guys are geniuses:

1) create the problem

2) complain about it, find somebody to blame

3) present something that looks like a solution

4) bingo, win reelection

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