U.S Retail Sales A Big Disappointment

U.S. retail sales were unexpectedly flat in July as Americans cut back on purchases of clothing and other goods, pointing to a moderation in consumer spending that could temper expectations of an acceleration in economic growth in the third quarter.

The Commerce Department said on Friday that the unchanged reading last month followed an upwardly revised 0.8 percent

increase in June. Retail sales in June were previously reported to have increased 0.6 percent.

Sales rose 2.3 percent from a year ago. Excluding automobiles, gasoline, building materials and food services,

retail sales were also unchanged last month after an unrevised 0.5 percent increase in June.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Economists had forecast overall retail sales rising 0.4 percent and core sales climbing 0.3 percent last month.

Robust consumer spending helped to cushion the blow on the economy from an inventory correction and prolonged drag from

lower oil prices, which restricted GDP growth to an average 1.0 percent annualized rate in the last three quarters.

Friday’s data suggested consumer spending was cooling after the second quarter’s brisk 4.2 percent rate of increase.

Despite the surprise weakness in July, consumer spending remains supported by a strong labor market, as well as rising home and stock market prices. The economy created a total of 547,000 jobs in June and July.

The Atlanta Fed is currently forecasting the economy to grow at a 3.7 percent annualized rate in the third quarter.

Online retail sales jumped 1.3 percent, while receipts at clothing stores fell 0.5 percent.

With consumers cutting back on discretionary spending, sales at sporting goods and hobby stores fell 2.2 percent. Receipts at building materials and garden equipment retailers fell 0.5 percent.

There were declines in sales at electronics and appliance outlets and service stations. Americans also cut back on spending at restaurants and bars.

US Consumer Wallets Remain Closed

US Consumer Wallets Remain Closed

The US retail sales figures disappointed, raising doubts as to whether the Federal Reserve will increase interest rates this year.

The US consumer needs to start spending for the Fed to be satisfied the economy is firing on all cylinders. Consumer reluctance to open their wallets left many stumped and even with the stars apparently aligned, consumers are squirrelling away the extra cash earned from low gasoline prices and rising employment, instead of spending. It is little more than a fool’s errand trying to predict the economic leading indicators, let alone when the next Fed rate increase will occur.

USDJPY – Dwindling Expectations 

The USDJPY pair is likely to get fleeting support from the US dollar. With few compelling arguments to support the threat of a Fed hike in 2016, it’s difficult to see USDJPY making ground above ¥102.50 resistance levels near term. With ‘risk on’ booming, the USDJPY dwindling around the ¥101 level, and without any meaningful FED hike expectations, based on the Fed narrative, the path for USDJPY is paved lower, with a possible push to ¥100 on the cards.

As US Dollar support wanes, the market is turning its focus to Japan’s domestic data to make a case for more BOJ stimulus. This morning’s preliminary GDP prints came in lower than expected. While relatively disappointing, GDP weakness supports building expectations for the BOJ to add further stimulus, but the markets are not having any of it so far, and USDJPY remains in seller mode. Keep in mind that preliminary GDP data is often subject to messy revisions.

YUAN – Rate Cut Chatter 

Growth in bank loans (CNY463.6bn) and aggregate financing (CNY487.9bn) was only half that estimated in a Bloomberg survey, and M2 growth has slowed to 10.2% year on year, from 11..8% year on a year previously. Bloomberg’s estimate of monthly GDP ticked down to 6.94% from 7.13%. Such a tepid start to Q3 raises more questions than answers and expectations are high for some stimulus measure.

Now the markets are back to playing the PBOC  rate cut game, but one has to wonder about the real effectiveness of additional monetary stimulus as China may be caught in a ‘liquidity trap’, with policy makers left to juggle some frangible concessions.

While China can buy some time by lowering interest rates, we need to be cognisant of recent reports that suggest the PBOC may have painted itself into a corner on the stimulus front, implying further easing could pressure an already bulging debt-fuelled asset bubble, which would likely lead to more capital outflows as the Yuan weakens.

Mounting credit risks are a fundamental fracture in the Chinese economy; so much so that these very concerns have been raised by the IMF time and time again. The IMF now views China’s Interest–Rate levels as appropriate. With SDR inclusion set for October, mainland policymakers unlikely to create any undue concerns.

Despite the heightened level of interest rate chatter, trading in the Yuan remains subdued. I suspect the proximity of Octobers SDR inclusion date has more to do with Traders anticipating the tight ranges, and they aim to hold until then.

Ringgit – Benefiting from Oil Market Short Covering 

The price of oil remains the biggest driver of MYR sentiment and with oil prices showing little signs of plateauing, I remain cautiously bullish for the Ringgit this week.

I expect ASEAN currencies and the Ringgit to trade firm as US dollar strength abates, and the Fed appears to be sidelined for fear of tightening too soon.

Australian Dollar – The China Syndrome

China’s economic data has taken a back seat of late, but last week’s disappointing data appears to be weighing on Australian Dollar sentiment and will likely keep the top side in check short term. As more fissures appear in China’s economic data, it fuels concerns that China’s economy is again losing momentum, which could take some of the shine off the  Australian dollar.

Base metals closed last week on a sour note and if not for the increasing chatter about the possibility of more stimulus from the PBOC, metal prices could have suffered a more precipitous decline.

On the domestic front, increasing noise about a possible RBA rate cut may weigh on sentiment building up to Tuesday’s RBA minutes. With few, if any, surprises expected, the G-3 Central Bank dovish storyline will remain intact. Weaker US Retail Sales and Consumer Sentiment reports are likely to power the USD narrative for the remainder of the month.

Expect the AUD to remain supported on dips, as markets stay in yield-seeking mode, especially so if the US dollar continues to flounder this week, as expected.

The Australian employment report is due this week, but given the data’s proclivity to surprise, there should be little-sustained impact on the AUD either way.

Sterling Bears Feel the Heat After Retail Sales

Five things the markets are talking about

It’s not a surprise to see the dollar turning lower post-FOMC minutes yesterday. The Fed’s communiqué illustrated a conflicted outlook for rate hikes; with some Fed members wanting to wait until inflation firms and others saying a rate increase would be warranted. A confusing message should have been anticipated, it’s what the Fed seems to have perfected in 2016!

Forex and fixed income investors have, for some time, been sceptical that the Fed will be able to raise rates this year amid weak economic growth, even as Fed officials have said they would like to tighten policy.

Yesterday’s minutes showed officials discussed how they could implement monetary policy in a world dominated by NIRP (negative interest rate policy). Conventionally, the most dominant of central banks (ECB, BoJ, BoE and Fed) have favoured moving short-term rates up or down to stimulate their respective economies. However, with domestic interest rates unlikely to move up very far in today’s rate environment for various geo-political and economic reasons, U.S officials do not have the luxury to lower them in case of a downturn. This scenario is forcing the Fed to look at other alternatives.

No matter what, despite the lack of monetary policy inaction from the Fed, officials are expected to keep these markets on their toes surrounding every news bite from policy members.

Capital markets focus will now turn to the Feds annual symposium at Jackson Hole Wyoming (August 26). Let’s hope it will provide a better platform to deliver a more defined message about U.S policy.

1. Weaker dollar helps energy and commodities

Oil has extended its rally for a sixth day, helped by a weaker dollar and an unexpected drawdown in U.S. crude and gasoline stocks.

As anticipated by many, Brent this morning topped +$50 a barrel for the first time in six –weeks. This August +22% rally has been fuelled by the potential for an output cut agreement at a meeting of OPEC and non-OPEC producers next month.

Brent crude oil futures were trading at +$49.93 per barrel, up +8c, after earlier rising as high as +$50.05 a barrel. While West Texas Intermediate (WTI) crude futures were trading at +$47.10 a barrel, up +31c.

Some of the ‘bear’ positions continue to stick to their guns citing “galloping” Saudi output and technical factors to cap crude prices.

2. Global Indices get the green light

The Fed’s mixed signals continue to support global stocks, gold and U.S treasuries.

The Stoxx Europe 600 was up +0.5% in morning trade, led by shares of energy and mining companies. Both commodity and mining stocks in the FTSE 100 is leading their gains.

Currently, U.S futures point to a flat open for the S&P 500, leaving it within +0.4% of its record high.

Gold bulls are out in force, pushing the yellow metal higher for a fourth straight session (+0.6% to +$1,357.20 an ounce). The metal tends to shine more brightly when compared with yield-bearing assets when interest rates are low.

Indices: Stoxx50 +0.3% at 2,991, FTSE +0.2% at 6,872, DAX +0.4% at 10,584, CAC-40 +0.3% at 4,430, IBEX-35 +0.2% at 8,504, FTSE MIB +0.3% at 16,577, SMI +0.3% at 8,180, S&P 500 Futures flat

3. No fuss with yield curves, same story

The message from the Fed suggests there is no hurry to get the next rate hike out of the way.

In translation, for the bond bear, the minutes came as a disappointment, especially after New York Fed President Dudley’s remarks 24-hours earlier that suggested that U.S policy makers remained interested in raising interest rates this year.

U.S yields remain range bound; the yield on the benchmark 10-year note is +1.551% in late Euro trading, compared with yesterday’s close of +1.541%. Money markets will now set their sights on the Feds annual symposium at Jackson Hole Wyoming (August 26) for clues on how better to be pricing the short-end of the U.S curve.

4. Sterling ‘bears’ face another squeeze after retail sales

Post-Brexit data this morning shows that U.K consumer happily visited shops last month. Most on the street had expected the late June vote to leave the E.U would hurt U.K consumer spending – apparently not.

Today’s number covers the first full month of the post-referendum period. The +1.4% retail sales headline print easily beat the consensus for a “flat” reading.

It seems that a weaker sterling encouraged overseas shoppers to help push up sales, especially luxury items such as watches and jewellery. July saw a +5.9% rise in sales on the year, beating the +4.2% forecast, and up from June’s +4.3% rise.

Numbers like this certainly supports the pound. Ahead of the U.S open, GBP has hit a new two-week high (£1.3172), well above the £1.3087 just before the data. The ‘bulls’ will be looking to take out this month’s high, just shy of £1.3400. The weak GBP bears must now be concerned?

5. Euro inflation numbers suggests further ECB action maybe warranted

The ECB should be disappointed with this morning’s inflation readings. A headline print rising to +0.2% in July from +0.1% in June would be considered a very small step in the right direction for the ECB, however, given the slowdown in the region’s GDP growth in Q2 would suggest that further accommodating measures may be required as early as September 8.

For Europe, and other major central banks, Brexit remains the outlier. If Draghi and his fellow policy members believe that the U.K’s historic vote will undermine the regions growth prospects then the ECB will want to extend its non-conventional simulative measures – the length of its QE or raise the monthly amount of purchases.

Do not be surprised to see over the next few weeks’ fixed income to begin positioning themselves for further ECB action.

The Fed: A Great Divide or A Growing Rift

By any measure of price action, the longer Traders have to dwell repetitively and ruminate on the Fed policy the less US dollar friendly they are likely to become.

From the rhetoric making the rounds  , it would seem that Federal Reserve officials face a very complex, and possibly divisive  debate over the conundrum of an improving employment sector against a background of low inflation and tepid consumer spending.

In separate Statements this week, policymakers central to the debate outspokenly laid out divergent viewpoints. Fed Dudley, influential within the Fed ranks, clamoured for a rate hike while the no less influential Fed William, whose academic letter caused a sweeping re-think of the Fed’s intentions, was equally as hawkish. On the opposite side, a frank Fed Bullard  staunchly supported his view that a single interest hike may be all that is required long term, with absolutely no need for a near-term adjustment. If together the recently awakened force of Dudley and Williams make tangible inroads among their colleagues, perhaps the Doves will no longer dominate the roost.

I expect increasing chatter among the Fed decision makers as we approach the August 26 Jackson Hole Symposium. Ultimately, in a middling global economic environment, if recent history tells us anything about the current Fed board, the preferred risk control approach is to delay interest rate hikes.

Aussie Dollar – Asymmetrical Appeal

The dollar lower trend appears to be the preferred near-term direction, in which case the Australian Dollar should remain a buy on dips. However, given the market proclivity to focus on Fed Speak, we are more likely in for a choppy ride in the interim, as I suspect only comments delivered from Chairperson Yellen herself will trigger the next broader USD dollar move.

Currently, the market is finding its comfort zone swinging 50 pips either side of 77 level, as interest wanes heading into weeks end. Moves have been shallow overnight with few triggers to change the current dynamics.

External factors continue to drive local sentiment and as such, I anticipate the asymmetrical reaction to local data, in that below consensus, data will have limited price movements, while a stronger AUD will reward consensus data prints. Weaker data prints will not alter the current RBA narrative while more solid data points may increasingly factor into the near-term rate debate.

An interesting titbit from Governor Stevens was making the rounds overnight. In an interview with The Australian newspaper, he referred to welcome and unwelcome types of Capital inflow, which spurred debate overnight on trading desks. From a policy perspective, this appears clearly directed at Foreign property speculators. While stopping short of increasing transaction taxes, it may be some foreshadow of capital controls to come, opening up a potential interest rate policy response.

Japanese Yen – Lacking Enthusiasm

The Yen is oscillating between ¥99.50 and ¥101. The ¥99.50 test appears the more likely outcome as the market is convinced there is little the BOJ can do to halt the move. While the markets want to press the lower boundaries, a pre-weekend test is unlikely given the jawboning and warning shots from the MOF, not to mention that enthusiasm has started to wane as August holiday mentality takes hold.

I expect USD rallies to be initially sold, but could ultimately give way given the market positioning, as short covering into the weekend may dominate flow.

Today’s Tokyo fix may be a good indication for local Tokyo demand for dollars, which could set the pace in the market today. Any move below ¥.9975 will likely face local importer demand, as fear of BOJ intervention will increase on any move below the Brexit ¥.9902 level.

The complete Fed narrative is required to make a bold move at this level and the market may well sit on the fence until post-Jackson Hole.

Yuan – Listless Directionless

With few motivation from mainland political musings, traders taking the USD  random walk with no apparent discernible pattern or trend.

With traders not looking to fall into a value trap ahead of the next broader USD move, I suspect there will be little interest until September when speculators will start shaking the trees again.

MYR- Rangy Ringgit 

Bond markets are attracting all the attentions as it was announced that GII would be part of the JPMorgan’s bond indices starting from Oct 31

The ringgit remains more or less sidelined, importer demand below 3.99 limiting MYR rallies with few willing to chase the moves. Summer time market conditions likely to prevail until September.

Markets Fish For Fed Clues

Five things the markets are talking about

Most of the big’ dollars strength has come on the back of a number of ‘bullish’ Fed member

comments over the past few sessions.

Late last week, Fed members Dudley and Williams both suggested that they would not completely rule out an interest rates hike in September. Last night, Fed Vice-Chairman Fischer said the U.S economy is close to the Fed targets and a 2016 hike is still under consideration.

With investors continuing to seek guidance, the market will want to focus on the Jackson Hole symposium to be held at the end of the week where Fed Chair Janet Yellen is expected to give a speech on monetary policy.

However, it is a rather uneventful week ahead of the symposium. Investors will be required to digest flash August manufacturing PMI’s for the Eurozone, France, Germany, the U.S and Japan. Midweek, revised Q2 GDP for France and the UK will be released and on Thursday, Germany’s Ifo survey for August will be reported.

1. Global indices mixed as markets brace for Fed comments

In Asia overnight, stocks were largely mixed, with traders bracing for the likelihood of hawkish commentary from Fed officials at its annual conference starting Friday.

The Nikkei Stock Average traded +0.3% higher as the yen slipped, pressured by further negative rate talk from the Bank of Japan’s (BoJ) Kuroda. The Governor speaks tomorrow and the market will be looking for clarification on his NIRP comments.

In Europe, equity trading remains seasonally light, however, bourses are edging higher ahead of the U.S open. Homebuilders are leading the gains in the FTSE 100 along with financial stocks. In the red, commodity and mining stocks are trading notably lower, mostly on the back of lower intraday crude oil prices.

Indices: Stoxx50 +0.8% at 2,993, FTSE flat at 6,860, DAX +0.8% at 10,631, CAC-40 +0.6% at 4,429, IBEX-35 +0.7% at 8,506, FTSE MIB +1.2% at 16,507, SMI +0.7% at 8,187, S&P 500 Futures +0.1%

2. Crude prices splutter, gold slips 

Oil prices start the week on the back foot as investors question the ability of producers to reign in “over” supply concerns at next months OPEC meeting.

With crude prices rallying +20% month to date, it’s not a surprise to see a pull back. Soaring exports of refined products from China and the rumored possibility that Iraq will raise oil shipments by +5% over the next few day’s is also pressuring prices.

Brent crude futures are trading at +$49.93 per barrel, down -95c, or -1.87%. West Texas Intermediate (WTI) is down -84c, or -1.73% at +$47.68 a barrel.

With the lack of new crude buyers in the market, this month’s energy price rally has more to do with ‘short’ position covering ahead of September’s producer meetings rather than any fundamental reasons.

With the dollar finding support commodities are under pressure.

Gold is trading atop of its two-week lows as the dollar strengthens from Fed Fischer’s overnight comments that the Fed is close to hitting its targets for full employment and its +2% inflation target.

Spot gold is down -0.6% at +$1,332.80 an ounce. Last week’s COMEX futures positions indicate that speculators have again cut their bullish positions. Also ahead of the U.S open, spot silver has hit a new seven-week low of +$18.77 an ounce.

3. Bullish Fed backs up yields

U.S. Treasury yields are on the move ahead of the open stateside.

In Europe, U.S yields have hit a two-week high this morning on expectations that the Fed will give a signal at Jackson hole this weekend that it is gearing up to raise interest rates.

U.S 10-years have backed up +4bps to touch+1.60% while shorter-dated yields have touched levels not seen since the U.K’s June 23 Brexit vote.

Fed-funds futures on Friday showed a +18% chance of a rate increase in September, up from +15%, while the odds of an increase by December rose to just over +50%, compared with a +46.9% chance last Thursday.

4. BoJ has limited power

The market is starting to get concerned about some of its yen positions.

Currently, the short-term speculators seem to be holding a modest yen ‘short’ position after exiting from their yen ‘long’ positions, and they are getting limited love from BoJ rhetoric.

The USD/JPY (¥100.62) pair is currently being supported by dovish BoJ commentary that there is “technically” room to take rates further into negative territory. However, the yen bears are beginning to become more concerned that the USD is finding it difficult to regain a foothold above the psychological ¥101 especially with rate differentials.

If Ms. Yellen happens to disappoint this week, there is a strong possibility that a USD/JPY fall will accelerate below the strong support ¥99.00 threshold, and force the unwinding of these “short” yen positions all at once.

Under this scenario, it would not be a surprise to see the USD/JPY reach towards ¥95 over the short-term.

5. Rate differentials support dollar

With the lack of fundamentals on show, investors continue to take direction from interest rate chatter. Intraday ranges remain relatively contained, with lower volume trading being reported.

The Fed’s Vice Chairman Fischer provided the ‘mighty’ buck’s early support with his overnight inflation and employment comments. Nevertheless, expect investors to remain wary of buying too many dollars on prospects of a near-term U.S. rate hike, which could be dented by Ms. Yellen’s Jackson Hole speech. Despite U.S jobs data being stronger, inflation has remained somewhat muted.

EUR is down -0.3% at €1.1295, while USD/JPY trades up +0.4% at ¥100.64. Amongst the majors, the outlier remains GBP, which is trading higher (£1.3103) having begun the day lower.

Top trade idea for August 23rd, 2016 – USD/NOK

On the 4h chart of crude oil we can see that price made a nice rally from the lows, for now in three waves but because of strong bullish momentum with sharp price action up to 161.8% Fibonacci ratio, we believe market made wave 3) as part of a bullish impulse. That said, current downward reversal is probably wave 4) that can move back down to 45-46 area, the region of two common Fibonacci ratios for wave four corrections, 23.6 and 38.2, from where a new turn up would be expected.

Crude OIL, 4H

A week back or so we posted our view on USDNOK, not so popular pair for traders, but it may be interesting sometimes if we consider a strong positive correlation between the dollar and the Norwegian krone. When crude oil is in a bullish trend you will typically see NOK moving up, thus falling USDNOK. well, we know that oil is in nice uptrend for the last few weeks while USDNOK is down. We see nice bearish impulse on 4h chart with more downside to come in the very near term as minor recovery looks like a wave four.

USDNOK, 4H

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About Gregor Horvat

Gregor Horvat, based in Slovenia, has been in the forex markets since 2003. He is a technical analyst and individual trader who has worked for Capital Forex Group and TheLFB.com. He also is founder of forex services on www.ew-forecast.com. EW-Forecast.com provides technical analysis of the financial markets, highlighting behavioral patterns based on the Elliott Wave Principle (EWP). Website: http://www.ew-forecast.com/ Try EW-Forecast.com’s Services Free For 7 Days athttp://www.ew-forecast.com/service

Dollar’s Asymmetric Rally “Unlearns What We Have Learn’t”

Another quiet day in Asia ahead of Fed Governor Yellen’s speech in Jackson Hole. The USD has moved asymmetrically in last 24 hours. Rallying against some pairs and falling against other. Today we take a look at some of the most “interesting” moves and ponder whether positioning, Jackson Hole or other “forces” are at play.

The degree of resurgence very much depends on against what. It has had a very strong run in the last few days against oil, precious metals and commodities in general. A reasonably strong rally against Emerging Market currencies today, a negligible rally against most G10 and continues to fall against GBP and NZD.

From a technical perspective, it has made some significant inroads into some of the above that we will look at shortly. The question here is, does this mark a period of renewed USD strength? Or is this just a “faux” rally ahead of Yellen’s speech driven by position squaring? The honest answer here is I doubt anyone truly knows. Certainly not me.

My instinct tells me this is positioning squaring but until the details of the speech come out I don’t feel there is a lot of point getting tied up in conjecture. I won’t tie myself up in knots second-guessing the will she/won’t she, hawkish/dove, wax on/wax off; I will prefer to observe the post-speech price action. That will tell the truth.

Nevertheless, some of the divergent short term price action makes for compelling viewing…

GOLD

Not pretty reading for bulls such as myself. Gold has broken back into the daily Ichi moko cloud at 1330, and this becomes resistance now. Support comes in at 1315.30, previous daily lows, and then 1314.65, the 100 day moving average (100 DMA). A daily close under here opens up a move to 1287 the bottom of the cloud.

SILVER

Broke the 100 DMA at 18.8400 and this becomes resistance. Treading water above support at 18.4850 the bottom of the daily cloud. A break here opens up a move to 17.5000 the 200 DMA and a series of daily highs. This level is important as it marked the start of the initial breakout upwards.

A hawkish Yellen speech, on the basis of this technical setup, opens a potentially ugly move down. There are still a lot of long Silver positions out there, mostly at levels near 19.5000/20.0000. To paraphrase that great Master, Yoda, “we may have to unlearn what we have learnt.”

PLATINUM

My beloved inverse head and shoulders here has been well and truly invalidated. The article is here Platinum Higher?

Platinum is marking time as well above the 100 DMA at 1073.65. Next support is at 1058.70 the top of the daily cloud.

Resistance is at 1103.00, a series of daily highs back to early July and the breakout point once again of the last rally.

COPPER

Supply overhangs continue to weigh here, and it’s not been a happy week for mining shares.

The chart points to a move to June lows at 2.0200 if 2.0760 breaks and closes under here.

Topside resistance is solid now between 2.1400and 2.1700. This contains both sides of the Ichi Moko cloud and the 100 and 200 DMA’s.

USD/ZAR

The Rand continues to get slammed as the fallout I spoke about yesterday continues. The latest is the Finance Minister is simply refusing to attend the police interview Thursday! Yesterdays story South African Rand Slammed

We are approaching important daily resistance at 14.2000 area, and a break sets us up for a test of the 100 DMA at 14.4000. I said yesterday USD/ZAR will be driven by politics going forward but a hawkish Yellen will no doubt add fuel to the fire.

NZD/USD

Fonterra, New Zealand’s largest exporter, upgraded their Milk Payout forecast to farmers this morning. This matters as dairy makes up some 20% of New Zealand’s exports. When Fonterra sneezes, New Zealand catches a cold and vice versa.

This gave an extra fillip to the NZD which continued its march higher against the USD and bucking the overall trend. We have broken resistance at 7305 now, and this sets the Kiwi up for a move to 7450/7500 area. Expect more rhetoric from the RBNZ now vis a vis the level of the Kiwi.

No doubt there is much gnashing of the teeth in frustration at RBNZ HQ, as their efforts to talk the currency down fail dismally. As I have said previously, New Zealand’s status as one of two remaining creditworthy G20’s with an actual positive yield, mean any sustained selloff of the NZD is will difficult to maintain. With the surprise Fonterra upgrades in the milkshake, this just got a lot harder.

GBPUSD

The British have always marched to their own plucky beat, and the currency is certainly doing the same. Much like the NZD/USD above. In the big picture, GBPUSD has traded 1.2850/1.3350 since Britain chose to fight Europe on the beaches, etc in July.

With a huge amount of short positioning out there GBP has not managed to make a new low since Brexit Day. The absolute low around 1.2800 remains comfortably unchallenged. Resistance at 1.3350 is not to far away and a daily close above set up the potential for a nasty short squeeze.

The price action will tell the story, but the outcome will not be dictated to by whether Ms Yellen is yellin’ or bellin’.

Summary

The USD rally is asymmetric. Showing itself more strongly against some, neither here nor there against others and being totally ignored against other pairs still! One suspects that the amount of short-term positioning out there is the underlying driver of the magnitude of these moves. The need to reduce risk and positioning ahead of the Jackson Hole speech causing much “unlearning of what we have learnt.”

Whether some of these moves continue will depend on the content of the speech and as such, patience is a virtue here.

Jackson Hole APAC Breakfast Edition

Jackson Hole APAC Breakfast Edition

Today’s focus will clearly be on the Fed Chair Janet Yellen’s speech at Jackson Hole, which is scheduled to be delivered at 10 am EST. According to the Curriculum, the topic is “Designing Resilient Monetary Policy Frameworks for the Future”, which is, in itself, a rather academic-sounding piece and unlikely to answer investors primary concern as to when are interest rates going up? However, as is the case with most Fed speaking engagements, it will mainly involve deciphering verbal gymnastics while looking for a smoking gun.

Traders will look for Dr. Yellen’s views on shifting Global and Domestic Economic landscapes as well as the all-important cost benefit of maintaining the status quo, the “lower for longer” interest rate theme.

Most traders have ruled out the Hawkish Pain Trade, a September Hike, while positioned for a more likely outcome that the Feds will nudge December, keeping expectations higher,  while maintaining a dovish lean.

The market is now very comfortable with low volatility, and while the Feds are likely a bit concerned about investors taking too much repose in this period and perhaps taking on much bigger risks, it is unlikely that the Feds will aggressively alter the funding landscape to avoid massive market fall out.

Australian Dollar

It has been another quiet session for the Australian Dollar as we walk into the same market from yesterday. It is no surprise that Traders are patiently waiting for comments from Yellen as position unwinding dominates flow. At this stage, most traders do not believe tonight’s comments will ignite the next significant dollar trend, but there is sufficient two-way risk to keep inventories and positions light and tight.

With Jackson Hole dominating market sentiment, traders have ignored moves in industrial and precious metals as well as oil markets. Clearly, the monetary policy theme is dominating the landscape, but I expect Hard Commodities and Oil price movements to come back in focus next week.

It is a bit perplexing that the Australian Dollar has been impervious to underlying commodity price changes, but AUDUSD price action is telling me the market is not expecting any hawkish tack from Dr. Yellen tonight.

Japanese Yen

Jackson Hole is only one piece of the puzzle as a trader looks forward to the Bank of Japan Sept 21 meeting, which will be a pivot point for USDJPY. Overnight, the pair bounced higher on short covering, which was not unexpected.

Some early reports have suggested that the Government Pension Investment Funds return may have dropped into negative territory; a notion which is having a limited market impact at this point.

Yuan

It is the second day that the PBOC is doing a 14d reverse repo this week. The last time the central bank used a liquidity injection via the 14d instrument before was in February 2016.  Naturally, this event has a few tongues wagging while raising more questions than it has answers.

At this point, I do not view this as a change in monetary policy, but rather nudging borrowers towards longer term funding and perhaps the first stages of implementing a transparent funding band. Bondholders typically like funding with the cheapest end of the curve, which is the overnight Repo markets, and this move could pressure bond markets as funding cost would move higher. It is also designed to ensure that short-term money gets distributed to the economy and not speculators.

WTI

Oil prices have risen again after reports that a US Navy ship has fired three warning shots because an Iranian patrol boat came within 200 yards. The WTI rose from 46.40 to 47.44 where it closed out the NY session.

About Stephen Innes

Senior Currency Trader and Analyst, Stephen has over 25 years of experience in the financial markets and specializes in Asian currencies atOANDA . After having started his trading career with NatWest Bank, he is currently based in Singapore as a Senior Currency Trader and Analyst with OANDA, focusing on the movement of the Aussie Dollar and ASEAN Currencies. Stephen has an extensive trading experience in Interest Rate Futures, Money Markets and Precious Metals. Prior to joining OANDA, he worked with organizations like Cambridge Mercantile, Nat West, Garvin Guy Butler, Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario. Follow on Twitter profile.

Top trade idea for August 26th, 2016 – USD/SGD

The annual meeting of central bankers at Jackson Hole is here at last. MsYellen’s set speech, entitled “The Federal Reserve’s Monetary Policy Toolkit”, may or may not attempt to move market thinking towards a faster

interest rate tightening cycle.

Before you say “meh”, consider the market positioning. The forward interest rate curve varies but is expressing doubt that there will be a Fed rate rise this year, with the probability fluctuating between 40% and 60%. However, the outcome is binary, and the timing could vary. At this stage, markets are giving less than full weight to a rate rise.

This may change today. If Chair Yellen talks higher rates faster, there will be a market reaction. On the other hand, there is very little possibility that Yellen will talk rate cuts, or rule out rate rises this year. A speech that is interpreted as maintaining the status quo is unlikely to shift markets.

This set up points to possible asymmetric risk, with the USD to strengthen, or remain steady.

The Singaporean economy is steady at low growth. The lower than expected industrial production numbers today did little to shift the currency, suggesting the current Sing economic climate is reflected in USD/SGD. This makes it an ideal instrument to express USD views.

The clear overhead resistance gives an entry strategy. Buying at 1.3635, with a stop loss at 1.3582, some traders may target 1.3800 given the May resistance at the level. However, my view is that such a development could take days and weeks for the market to price correctly, and therefore my target is 1.4050, just below the February resistance.

How To Trade The Parabolic SAR in MT4

Hi, this is Shaun Overton with ForexNews.com and OneStepRemoved.com. In this 3 minute video, I’m going to introduce you to the Parabolic SAR indicator for MetaTrader 4. If you don’t already have a demo account, you can follow along for free with an OANDA account by clicking the link below this video.

The Parabolic SAR is far and away the most popular indicator that doesn’t use lines on the chart. It’s used by range traders and trend traders alike, although it’s widely used by trend traders. The indicator provides long term opportunities by spotting entry and exit signals.

The Parabolic SAR starts with a dot underneath the price. The longer that the dot remains underneath the price, the dots move exponentially races to catch up with the individual bar lows formed in the market.

If the Parabolic SAR started only 5 bars ago, the rate of change between the dots is very small. But as you get 20-30 bars into an opportunity, as you see here, the space between each successive dot increases rapidly. It’s like the PSAR is saying this trend has got to end soon. It’s waiting for the final bit of confirmation to flip direction.

The dots on this chart are either above the price or below the price. When they start below the price, the moment that they flip is when this low touches the dot formed on the last bar. At the precise moment when the bar’s low touches the PSAR value on the last bar, the dot flips.

The dot is now above the price. That is a valid sell signal. The sell signals work in the opposite way to the long signals. You’re waiting for a bar high to touch the dot and create a new buy signal.

The indicator gives you an always in the market reading, either long or short. All of the signals alternate purely back and forth between buy and sell signals.

The way to use this in a trending strategy is as basic as the indicator. Buy when the dot flips below the price. Sell when the dot flips above the price.

The best Parabolic SAR strategy that I’ve seen historically is the GBPJPY H4 chart. That currency pair is prone enough to trends to generate signals with substantial volatility. But, the four hour time frame is short enough that it’s able to exit trades, both good ones and bad ones, in relatively short order.

You do give up substantial ranges on profitable trend trades by waiting for the dots to catch up. There’s not much that can be done about that except by playing with the PSAR acceleration values. You can do that by left clicking on the chart and choosing indicators, then Parabolic SAR. The inputs window shows the step and acceleration, which you can play with to suit your trading style.

Click the link below the video if you’d like to try the Parabolic SAR and need a free demo account for MetaTrader. That will take you straight to OANDA’s site where you can get one immediately.