Major Overnight Headlines
• Ballistic objects in E. Mediterranean detected by Russian radar drop into the sea; Syria/Isreal detect no threats
• RBA on hold, repeats AUD “high” and policy “appropriate”; drops “some scope to ease further” language
• UK construction PMI at 59.1 in August versus 56.9 expected; fastest pace of expansion in 6 years, Bloomberg
• IDR falls to another record low versus USD as July trade deficit widens to more than $2.0bln
Activity during the London morning today probably served as a decent view or window into what a large portion of September may actually look like. The lull in Syria tensions which began in the Asian session on Sunday into Monday set market participants up for having just one, main [macro] focus this week: the US economy and the Fed. Disturbing headlines about a potential ballistic missile launch however disturbed the calm and served as a reminder that September will be very much about juggling multiple factors.
We think the underlying bid tone in the USD reflects the fact that economic data from the US this week are again expected to be broadly consistent with a September Fed taper. We have to assume recent chatter about the $15.0-$25.0 billion range for “Septaper” is correct, given that it is also in-line with the view of our own macro team. If so, the “catharsis” (reduced uncertainty), gentle start to tapering and solid economic data all argue for further upside in risk assets – absent any destabilising headlines on the Syrian situation or distress in the developing market space.
A lack of destabilising headlines along the aforementioned lines is a “big ask”. But in a market so fraught with complexity, we’re forced to keep things relatively simple. On the assumption that we are in something of a “lull” in the Syria situation until next week, we’re content to buy USD/CHF and USD/JPY on the dips as long as US data don’t surprise to the worse. If equities can push higher from here or even just hold up, 99.00-99.50 in USD/JPY will have probably been decent entry levels for a long position in the pair should NFPs come in a 180k-220k range.
Read the full report: FX Daily
BMO