Market unwilling to make a move ahead of FOMC meeting
US Treasuries sold off heavily yesterday with the much better than expected Philly Fed and the falling continuing jobless claims numbers giving the optimists some hope while the market also eyes next weeks massive auction ($104 billion) of two, five and seven year US treasury notes. The auctions were announced yesterday. The heavy treasury selling and a gentle rally in stocks saw the the usual reaction in the FX market, with JPY crosses up sharply and the USD suddenly struggling back toward support. The ranges held rather well, however, with EURUSD finding a brick wall at 1.4000 once again before selling off all the way below 1.3900 late in the North American session. It appears the market is on tenter hooks ahead of next week’s FOMC meeting, where it appears the Fed will need to send some kind of signal on its view of the market’s rather bold prediction of late that the Fed could move on rates sooner than was previously expected. The market will also be curious how well it can absorb the treasury issuance blitz, as next week’s auction size was likely increased after the success of recent well subscribed auctions.
Particular interest was focused on the strongly falling weekly US continuing claims number, which was down a solid 148,000 from the previous week, the first drop since January. This will give the green shoots crowd some reason for hope, but there is an awful lot of wood to chop before we are likely to see the unemployment rate falling again in the US. The initial jobless claims number needs to drop consistently and the payrolls numbers will need to begin to turn to consistently outright positive levels before we can call a bottom, but this does give hope that the US job market’s deterioration is slowing.
The FT was out with an interesting article about Switzerland’s desire to reduce the size of its two largest banks to reduce the systemic risks posed by their size relative to the Swiss economy. The SNB’s Hildebrand indicated that he hoped to find new international rules for banks, but that the bank might have to take “direct and indirect” steps to limit banks sizes. This story bears watching, as does the SNB’s actual intervention in the market, which was apparently felt in the market yesterday to the tune of yards of francs on the offer after the SNB shot across the bow with strong verbal intervention earlier in the day.
As we have been doing for the past few days, we continue to focus on the ranges within the ranges, as players in the FX market dont seem to want to put many of their chips on the table until key technical and/or event risk thresholds are crossed. See EURUSD techs below. For AUDUSD, the important level comes in around 0.8050 to the upside with focus on the 21-day moving average on the close (the last close convincingly below this level was iin April).
Today’s calendar is very sparsely populated with the rather stale Canadian Retail Sales from April the only data point of note, but it appears that the market may be building energy for a larger move soon, as is often the case when important inflection points are in the offing. On the risk appetite front, we have all eyes on the 200-day moving average of the US S&P500,
