Markets came roaring back to life over the last twenty-four hours, sparked by a US rally amid speculation a September rate hike may be delayed. Overnight, Chinese equities were launched 6% higher after three days which produced losses of more than 16%. The US dollar index is up almost 1% and the greenback is surging higher against a basket of currencies following three days of losses. Looking ahead, US futures point to a higher open and all eyes will be on US Q2 GDP revisions and pending home sales which headline another busy North American trading session.
The stabilization in Chinese shares provided the most notable relief in overnight trading. Taking cues from North American shares, far east shares jumped more than 600 basis points in the first 45 minutes of trading and remained elevated into Thursday’s close. The People’s Bank of China set a new USD/CNY midpoint at 6.4085, and this dollar selling sparked some euro selling as Chinese reserves were assumed to be held constant. Bank of Japan’s Kuroda made comments overnight that no further plans exist for more policy easing while noting a US rate hike would elicit confidence in the world’s biggest economy and the world’s economy as a whole, nudging USD/JPY a bit higher.
It was a quiet European session, devoid of top tier economic data although stocks recovered nicely carrying the torch from the Asian session. Sterling, pushed lower by 300 points following the release of a YouGov poll showing more tempered inflation expectations, stabilized a bit. The euro continued its slide, now below the 200-day moving average and almost 500 points below Tuesday’s high. With liquidity so low this time of year, the foreign exchange markets are showing it does not take much to push currencies around. The EUR/GBP rate has had a tough time edging higher, restricted itself by the looming 200-day average. European inflation kicks off trading on Monday and paces what may be another quiet week.
As North American trading opens, all eyes will be on US economic data in the form of Q2 GDP (2ndrevision). Last month it was reported that the American economy recovered nicely in Q2 with preliminary estimates showing growth of 2.3%. Markets are anticipating a revision up to 3.2%, which could provide further support to the dollar. Also at 830am, weekly jobless claims will be reported and the market is expecting 280,000 Americans filed first time unemployment claims for the week ending August 21st. The US dollar raged in late day trading on Wednesday, as US stocks surged towards a +4% close. At 10am, pending home sales will be unveiled and the market is hoping this remains another strong sector of the American economy, following up on July new home sales which reported a 21% increase over the same period in 2014. Estimates are centered around a 9.4% year-over-year increase this morning.
Canadian headline data has been very limited this week, but that has not sheltered the Loonie from a volatile trading week. As oil prices dipped to 6-year lows following China’s multi-day selloff, the USD/CAD rate approached levels not seen since July of 2004. The Canadian dollar should continue to be a sell on rallies with some Wall Street analysts discussing the possibility of another rate cut before the end of 2015. Despite strong American data, the Canadian dollar has experienced any regional strength, instead losing steam on the back of the slide in commodity prices. Next Tuesday, Q2 CAD GDP will be unveiled before the July employment report next Friday.
Further reading:
EUR/USD, USD/JPY: ‘Show US The Money’; New Forecasts – Credit Suisse
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