No big moves till PCE today

Did you watch the rollercoaster or ride it yesterday? First the USD ignored the poor Consumer Confidence data, and shot upward to 1.2376, despite having the lowest reading (at 99.6 vs July 107) since November 2005. It was in fact the largest one-month decline in confidence since Hurricane Katrina last year. But when we take a look back to when the survey was conducted, there was a lot of unrest in the Middle-East (Lebanon) and there were fears relating to terrorism stemming from the terrorist plot to blow up planes, so it’s no wonder that consumers were pessimistic, alongside mounting signs of an economic slowdown in the US. Later on,

USD/CHF plunged by 90 pips in a matter of 40 minutes following the release of minutes of the last FOMC meeting on Aug 8, which shows that Fed policymakers expect core inflation to "decline gradually" though "many" members said more rate hikes "could well be needed"; decision to pause in hikes will let it "accumulate more information," minutes say, before charting future course. Still, "many members" felt decision to stand pat in August was "close call." What to make of it? While there is something for hawks and doves, the market in general sees very small odds of more interest rate hikes ahead.

EUR/USD hit the high of 1.2838, and then crashed to 1.2749 after consumer conf data, and then rebounded up to this morning’s high at 1.2852. Before euro bulls get trigger happy, don’t forget we still have the Personal Consumption Expenditure (PCE) figures today at 1230 GMT. Also out today at 1230 GMT is the US preliminary GDP, but that will completely be overshadowed by PCE data of course.

Having so much negative data means USD is more likely to slide downwards, unless there is surprising strong upcoming US data from say, today’s PCE and Friday’s NFP. Next support for USD/CHF to lie around 1.2255, then 1.2200, then 1.2182.

Next support for USD/JPY around 116.30. Remember that in the futures market, JPY shorts have increased against the USD last week, so if USD were to slide much more, we could expect to see desperate squaring of yen shorts in the FX market, driving USD lower.

Next resistance for EUR/USD lies around 1.2870, then 1.2911-1.2940 area.

As for UK, BOE/MPC’S Blanchflower is quite concerned about the state of the jobs market at the current juncture. It now looks like the Aug hike could have been simply a one-off response to firmer growth data/CPI pressure, with a willingness to reverse the hike if needed.

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