Market Recap

Please notice the scale on my graph of the trade-weighted indices. I had to change the scale today to two decimal places to show the tiny movement in the market. That’s probably because Friday was a holiday in many of the major markets and today is a holiday in many of the major markets too, so a lot of traders are out and those that are in the office are probably just doing as little as possible to get by. I wouldn’t doubt if that will be the trend for the rest of the day too.

It looks as if NZD and AUD have been the major market movers, but frankly I’m not going to spend much time trying to figure out why a currency moved 0.12% from Friday morning to Monday morning. It could be no more than Brownian motion – just random movement, particularly given that those two currencies have been on a weakening trend anyway. CAD TWI was up a barely perceptible 0.06% even as oil prices rose 2.7%, which just shows how dull the FX market was – and probably will be today, too.


Commitments of Traders

Speculators added a lot to JPY shorts, although they are not yet at extreme positioning. They also added to CHF, CAD and NZD shorts but closed out some AUD shorts – oops! A bit early there. MXN and RUB remain at extreme levels. There was a particularly large drop in gold longs, as well as silver (although silver longs weren’t so big to begin with, so the percentage change is more noticable than the actual value).

DXY longs fell but overall USD longs rose.


Today’s market

I’m going to be travelling on Tuesday morning so today’s comments will cover the indicators for Monday and Tuesday – which isn’t hard, because there’s not much on the schedule for either day. Moreover, the Fed is in the blackout period before the upcoming FOMC meeting so there are no Fed speakers this week at all.

It’s Easter Monday today in much of the world. Markets will be closed in Australia, New Zealand, Germany and Britain, among other countries.

The US doesn’t get today off and so the indicators start with the Chicago Fed National Activity Index (CFNAI). The CFNAI is different from the indices that the other regional Fed banks announce. Those gauge conditions in that particular Fed district, while the CFNAI gauges overall economic activity and related inflationary pressure on a national basis. A positive number corresponds to growth above trend and a negative number, below trend. Although the components have all been previously announced, the indicator is one of the more closely watched among those issued by the various regional Feds. However it’s difficult to interpret any one number, because the figures are so volatile. In any case, the market is expecting a small improvement in the figure but still a negative number, which would probably be negative for the dollar. The market is looking for Friday’s US GDP figure to show growth at least at trend, and a negative number might suggest some disappointment there.

US existing (Monday) and new (Tuesday) home sales are both expected to show a decline in housing activity. That’s only to be expected as both showed huge gains in February – for existing home sales, it was the second-largest increase in the 20 years that this series has been published. Even if the figures do come out lower, as expected, that would still give a 2% increase in average sales of existing homes and 11.4% increase for new homes for Q1 over Q4. That’s quite significant and would indicate that lower mortgage rates are indeed feeding through to housing and helping the sector to contribute to overall growth in the US. USD positive.

Wednesday morning in Australia, the country announces its Q1 CPI. The RBA targets inflation between 2% and 3% over the medium term. Besides the headline figure, it also looks at two core measures of inflation. No matter – all three are expected to slow further below the target range. Already the market sees a 74% chance of a rate cut this year, indeed a 53% chance of a cut by the August RBA meeting. A 53% probability still has plenty of room to rise, so I would say that this figure could fuel speculation about a near-term cut in rates and thereby be negative for AUD.


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Marshall Gittler

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