Greenback Bought on Pullback
<div><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1_NTKcYmLN_W3hKDK8DaK3Z7NkbJGApK-AsJPUGutxDmNus7Uj748_aSIP_-JabFpprKCPYNS2uHuWWcxVee7JHK-3w5-PmpQjxl2zrZ9Is9bZPSMk3PJeovafm8n-vRJMnyQLOw9fDuOJ3YkOoui3BFKcdLJdTTYQkhH_jwlzPleno60Kc3YIyC73ivz/s280/Dollar%20Express.jpg"><img alt="" border="0" data-original-height="217" data-original-width="280" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1_NTKcYmLN_W3hKDK8DaK3Z7NkbJGApK-AsJPUGutxDmNus7Uj748_aSIP_-JabFpprKCPYNS2uHuWWcxVee7JHK-3w5-PmpQjxl2zrZ9Is9bZPSMk3PJeovafm8n-vRJMnyQLOw9fDuOJ3YkOoui3BFKcdLJdTTYQkhH_jwlzPleno60Kc3YIyC73ivz/s400/Dollar%20Express.jpg" width="400" /></a></div><p><b><span>Overview: </span></b><span>The dollar was bought after yesterday's
pullback spurred by Japanese and Chinese comments and the tighter capital
controls from Beijing requiring permission to buy more than $50 mln. The
economic and monetary policy divergence continues to underpin the greenback. It
is firmer against all the G10 currencies and is mostly inside yesterday's
ranges. Most emerging market currencies are lower, led by central European
currencies. The Chinese yuan is steady. Equities are mostly heavier, but Japan, Taiwan, and Australian markets rose today. Europe's Stoxx 600 is a little lower and US index futures are off around 0.25%. <o:p></o:p></span></p><p><span>The Japanese benchmark 10-year
yield edged slightly higher and rose to 0.70%. European benchmark yields
softer by as much as two basis points. Despite the rise in average weekly
earnings in the UK, the 10-year Gilt yield is off almost five basis points to
4.42%. The 10-year yield is off about 1.5 bp to almost 4.27%. The US will sell
$35 bln of the 10-year note today (re-opening). Gold is trading in a narrow
$1918.6-$1924.5 range today. The 200-day moving average about $1920 today. October
WTI is firm near yesterday's $88.15 high ahead of OPEC and EIA monthly market
reports due today. The IEA's assessment will be released tomorrow. <o:p></o:p></span></p><p><b><span>Asia Pacific</span></b><span></span><o:p></o:p></p><p><b><span>BOJ Governor Ueda's weekend
comments, suggesting that ending negative policy rate by year-end is possible if
wages continue to rise, boosted the yen and Japanese rates yesterday. </span></b><span>The on-the-run 10-year yield is at 0.70%,
while the generic 10-year yield rose to 0.72%, the highest level since 2013.
Some argue that Ueda's comments were part of the stepped-up verbal intervention
campaign aimed at slowing the yen's descent. Yet, Ueda also noted that price
stability target is still "some distance away," which seemed soften
the blow of the threat to raise rates at the end of the year. The first bond
auction since Ueda's comments, (JPY2.5 trillion of five-year notes) saw strong
bid-cover and a slightly lower yield than expected. Tomorrow, Japan sells 20-year
bonds. It reports August PPI tomorrow and the July tertiary industry index
ahead of the weekend. These do not often elicit much of a market reaction. <o:p></o:p></span></p><p><b><span>The dollar briefly traded
below JPY146 yesterday and peaked in early North American trading near
JPY147.00, which is around where it opened after Ueda's comments on Saturday. </span></b><span>The JPY145.75 area corresponds to the
(61.8%) retracement of the gains from the September 1 low (~JPY144.45). The
inability to take this out and yesterday's close above the 20-day moving
average (~JPY146.30) suggests the dollar bullish sentiment has not been broken.
The greenback is consolidating in a narrow range today (~JPY146.45-JPY149.95).
We suspect it can trade toward JPY147.20 in North America today. <b>The
Australian dollar reached the session high near $0.6450 early in the North
American morning yesterday and spent the bulk of the session consolidating in a
narrow range mostly between $0.6425 and $0.6440. </b>The range extended on
the downside to support near $0.6415 today. Provided the $0.6400 area holds,
it can work its way back up to $0.6480-$0.6500. August employment data is due
early September 14, and a recovery is anticipated after jobs were lost in
July. <b>The yuan snapped a five-day slump yesterday with more efforts to
stem the yuan's drop and strong gains in the yen. </b>A trend line from
connecting the late July, early August and early September lows comes in today
around CNY7.2670. The month's low was set on September 1 near CNY7.24. The PBOC
set the dollar's reference rate at CNY7.1986 compared with the average yuan
estimate in Bloomberg's survey for CNY7.2852. It is the narrowest gap in
several days. The fix implies a range today of CNY7.0546-CNY7.3426. <o:p></o:p></span></p><p><b><span>Europe</span></b><span></span><o:p></o:p></p><p><b><span>The EC shaved this year's
GDP forecast for the eurozone to 0.8% from 1.1%. </span></b><span>Next year's forecast was reduced to 1.3%
from 1.6%. Germany, which had been forecast to grow this year by 0.2% is now
expected to contract by 0.4%. Italy's grow is now seen at 0.9% rather than
1.2%, and the Dutch outlook was cut even more. It is seen expanding by 0.5% not
1.8%. On the other hand, upward revisions were made to France's GDP (1. % vs.
0.7%) and Spain (2.2% from 1.9%). The ECB's economic forecasts will be updated.
In June, it put this year's GDP at 0.9% and 1.5% next year. As <a href="http://www.marctomarket.com/2023/09/week-ahead-us-cpi-to-make-doves-cry.html" target="_blank">we
noted</a>, the risk is that the ECB's forecasts are also reduced. In this
context, the deterioration of German investor sentiment should not be
surprising. While the German economy disappoints, the external surplus is
recovered smartly this year. The average monthly trade surplus has risen to
15.9 bln euros a month this year from an average of 6.1 bln in the Jan-July
2022. The broader measure, the July current account is due today. Meanwhile, the ZEW
survey showed continued deterioration in the current assessment (-79.4 vs. -71.3)
but a small improvement in expectations (-11.4 vs. -12.3). <o:p></o:p></span></p><p><b><span>The UK labor market slowed.</span></b><span> August payrolls fell by 1k, and the
97k increase in July was revised to -4k. It is the first back-to-back loss
since 2020. The number of jobless edged up slightly (0.9k, the third consecutive monthly
increase). The unemployment rate for the three months through July ticked up to
4.3% from 4.2%. It was at 3.6% in July 2022 and 3.7% as recently as January.
However, average weekly earnings accelerated to a new high of 8.5%, and the
June pace was revised to 8.4% from 8.2% (three-months, year-over-year) in July.
It stood at 5.2% last July and the low this year was in February (5.8%).
Tomorrow, the UK reports July GDP (and details). The median forecast in
Bloomberg's survey sees a 0.2% contraction. <o:p></o:p></span></p><p><b><span>The euro reached almost
$1.0760 in North America yesterday to record the session high, amid the broader
position adjustment. </span></b><span>Its
settlement was the highest in five sessions. There was a marginal extension in
the Asia Pacific turnover to $1.0770 before hitting a wall of sellers that
drove it back down to almost $1.0710. Bid emerged in early European activity
and initial resistance is seen in the $1.0730-40 area. The US CPI and ECB
meeting are less than 24-hours apart and could make for some volatile activity.
The market appears to have settled with a hawkish hold from the ECB. The
indicative pricing in the swaps market is consistent with around 40% chance of
a hike, but around a 75% chance of a hike before the end of the year. <b>Sterling's
showing was more impressive than the euro</b>. It settled above its five-day
moving average (~$1.2510) for the first time this month and set a three-day
high near $1.2555. However, it is heavier now and back below $1.2500 in the
European morning. The employment and wage data did not alter the swaps market
stance of about a 75% chance of a quarter-point hike next week and a little
less than a 50% chance of another hike before year-end. <o:p></o:p></span></p><p><b><span>America</span></b><span><o:p></o:p></span></p><p><b><span>The market sees practically
no chance of a Fed hike next week. </span></b><span>However, tomorrow's August CPI may threaten idea that the Fed
cycle is over. The futures market has less than a 50% chance of a hike at one
of the last two meetings of the year. Owing mostly to a rise in energy prices,
the month-over-month headline increase is projected (median in Bloomberg's
survey) to be greater than the previous three months <i>combined</i>. The
year-over-year rate will accelerate for the second consecutive month. Perhaps
the uncertainty about Q4 outlook for the Fed that last week's four- and eight-week
T-bill auctions ($150 bln in total) saw a below-average bid-cover. Reception at
yesterday's three- and six-month bill auctions ($131. bln in total) were a
little bit better than the previous auction. The $44 bln sale of three-year
notes (a $2 bln increase this month on top of a similar increase last month)
went off at a higher yield (4.66% vs. 4.40%, the highest since 2007) but at a
lower bid-cover (2.75 vs. 2.90) and a decline in indirect buying (57.7% vs.
74%). Dealers were left with the highest percentage (a little more than 20%)
the most since last November. Today, the US sells $35 bln 10-year notes and $60
bln of a 42-day cash management bill. On Wednesday, $20 bln of 30-year bond
will be sold and probably $50 bln four-month bills. Moreover, there looks like
a rush of corporate issues ahead of next week's FOMC meeting. The auctions may
be watched a bit closer than usual given the increased supply and some concern
about the resiliency of demand in the current environment.<o:p></o:p></span></p><p>
<o:p>
<o:p>
</o:p></o:p></p><p><b><span>The US dollar pulled back to
CAD1.3560 yesterday, a six-day low. </span></b><span>It met the (61.8%) retracement of the rally from the
September 1 (US employment report) low near CAD1.3570 and settled slightly
below the 20-day moving average (~CAD1.3575). Canada has a light economic
calendar this week, leaving the Loonie at the mercy of the broader dollar
movement. The US dollar recovered to almost CAD1.3595 today but is confined to
a narrow range and has not traded below CAD1.3570. <b>Helped by the heavy
tone of the greenback and stronger than expected Mexican industrial output
(0.5% vs. 0.3%) help the peso trade higher. </b>The dollar reached almost
MXN17.7080 last week and was sold to MXN17.2725 in late dealings yesterday. It
slipped a little more today (~MXN17.2470). It met the (38.2%) retracement of
the rally sparked by the unwinding of the central bank's forward currency hedge
facility. The next retracement (50%) is a little below MXN17.21. The daily
momentum indicators are stretched and look to be turning lower. This is the
kind of price action we were looking for that boosts the chances that the
dollar's short squeeze against the peso is over. <o:p></o:p></span></p><p><br /></p><p><a href="http://www.marctomarket.com/p/disclaimer_28.html" target="_blank"><span>Disclaimer</span></a></p>
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