Major Overnight Headlines
• Asian/morning London sessions see flight into risk, developing market FX as Summers withdraws
• Buba says EU legal basis “not sufficient” for single supervisory and resolutions mechanisms, Thomson Reuters
• Euro Area August CPI rises 0.1% MoM in August as expected; headline YoY confirmed at 1.3%
The most important aspect of Summers’ withdrawal from the Fed leadership race for the FX space is that it raises questions over the timeline for ending QE3 Bernanke tentatively proposed in June. That the bulk of the move lower in the USD this morning in London has been felt away from the EUR and the GBP and more against the basket of currencies seen as very vulnerable to a quicker cessation of QE is a case in point.
A simple glance at the recent move higher in GBP/USD, taken alongside the change in net speculative positioning, would appear to suggest that the rally in the pair is overdone. However, the anecdotal evidence suggests that real official money participants have probably been a very important force on the bid side of late, whilst systematic funds are still largely quite short of the GBP. Moreover, what the IMM data tell us is that long positioning in the GBP has not increased in a major way yet, suggesting that a large chunk of the move higher in GBP/USD has been a result of some segments of the leveraged money community cutting shorts, but not necessarily opening new longs to the same degree. Capitulation on the systematic side of the speculative community alongside additional positive UK macro economic data could in fact mean further upside in GBP/USD is likely before the cycle turns.
Read the full report: FX Daily
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