- JPY stronger on fixing demand, BoJ spent Y4.51tn on August 4
Month-end fixing flows and the risk of being whipsawed acted as a deterrent to position taking Wednesday. In the event, the JPY was the recipient of most attention, USDJPY running up into the 4pm London (WMR) fix only to drop 40 points immediately in front of the fix. Late in the day we learned that the BoJ’s August 4th intervention amounted to an eye-popping Y4.51tn or approx. $57.5bn, very much at the high end of guesstimates on the day. So each big figure of the (3-figure) USDJPY rally cost nearly $20bn. We now wait to see if the Japanese cabinet shows a commitment to helping Japanese exporters repatriate into fiscal half year end at better levels, but having seen the scale of August’s intervention and its temporary impact no wonder the trading community is intent on selling into any fresh intervention inspired bounce.
- CHF coming back into vogue on government stoicism and as we enter September’s obstacle course.
More news driven flows saw CHF retrace a portion of its recent weakness after the Swiss Finance Minister suggested that his country was going to have to learn to live with CHF strength for a while yet despite its huge overvaluation. Heading into September’s obstacle course and where the Greek PSI deal and Eurozone-wide endorsement of the expanded EFSF are two of the more obvious of many hazards, risk is that CHF will further retrace. The absence of the SNB from the FX forwards market in recent days adds to upside CHF risk barring an early reappearance by the central bank. Thursday sees Q2 Swiss GDP, July retail sales and the August PMI. If GDP prints positive (consensus +0.4%) and the PMI remains above 50 (consensus 51.0 from 53.5) this can only help the cause of CHF retracement.
- US ISM tops the US events calendar, pre Friday’s NFP and Obama’s Sep 7 jobs stimulus plan
Decent US factory orders data (+2.4%), an upside surprise on the Chicago PMI (56.5 down from 58.8) and the rarity of a rise in one of the regional PMIs (Milwaukee 58.3 from 57.6) haven’t done much to lighten the US economic gloom. Policy focus has for now shifted away from the Fed to President Obama’s plan to address Congress on September 7 with a new jobs stimulus plan. Scepticism regarding any meaningful measures being granted Congressional funding approval runs high. ISM provides the immediate data focus Thursday, with some interest in initial jobless claims (seen @410k after last week’s 417k, latter inflated by striking Verizon workers) and later in the day, vehicle sales (expected at 12.1mn from 12.2mn in July). ISM is seen dropping below 50 for the first time since July 2009 (48.5) and with ‘recession’ still not a consensus call, knee jerk reaction to anything much worse than this could be equity negative and USD positive (even if the considered view is that it adds to the chances of the Fed providing more liquidity for risk markets).
- UK PMI key for GBP
The August UK manufacturing PMI is going to be important for Sterling ahead of the Sep 8 MPC meting and where we do not rule out the possibility of a fresh QE announcement even if November is more likely following the next Inflation Report. We like being short GBP here and a sub-49.0 PMI print would add even more conviction to this view.
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