Price action over the summer months was anything but dull, so we would be surprised to see any significant pickup in volatility. For now, the general theme as we enter the Fall months has been one of risk aversion and demand for lower yielding alternatives to the USD, with the Yen and Swiss Franc finding the majority of the bids. However, the rapid and unrelenting appreciation in both the Yen and Swissie looks like it could start to take its toll, and we would not expect to see these currencies extend much further before a major capitulation. Both currencies are trading at or near multi-year highs, and the risk from here are for some corrective easing which might ultimately be catalyzed by some official action on behalf of the respective central banks.
Price action in Asia on Wednesday has been somewhat encouraging, with the markets responding well to a round of solid China data and better than expected Australian GDP. The Australian Dollar is the strongest performing major currency on the day thus far as a result. Meanwhile, we have been seeing some profit taking in Swissie and Yen longs following a day which saw Eur/Chf break to yet another record low, and Usd/Jpy trade back below 84.00. Asian equities are also higher on similar themes, but at this point, it is really too early to call for any real shift in the direction of the markets.
Looking ahead, German retail sales (0.5% expected) are due at 6:00GMT, followed by Swiss SVME-PMI (65.8 expected) at 7:30GMT. German PMI (58.2 expected) and Eurozone PMI (55.0 expected) are then out at 7:55GMT and 8:00GMT respectively. UK PMI (57.0 expected) then caps things off for European trade at 8:30GMT. At the moment, US equity futures are pointing to a solid open, while oil prices are also well bid. Gold on the other hand trades flat on the day.
Written by Joel Kruger
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