A Real Tease at the Close for FX

The market teases after last week's "marubozu" candlesticks yields to today's "doji". Equity markets closed at unchanged levels while our AUDUSD FX risk barometer toys with the 200-day moving average.

Risk appetite made a vague stab at a comeback today after last week's (mostly just last Wednesday's really) onslaught of risk aversion, but with a heavy headwind of rather negative data, the move faded by today's close and we end the day with a "doji" situation in which opening and closing prices are essentially unchanged. It was tough to argue for a rally from a fundamental point of view after the weak Japanese Q2 growth figure overnight, the relatively weak Empire survey earlier and the very weak US NAHB Housing Survey for July, which fell to 13 from 14 in June (and versus a consensus expectation for a rise to 15) and is a measure for demand of new houses and often leads the rest of the housing market data.

Otherwise, yields ended the day close to the low in Asia, a further testament to the amazing strength in the bond market, and this kept USDJPY toward the lows for the day, a mere 50 pips or so from the recent 15-year low at 84.73.

Looking ahead

Watch out for the RBA minutes tonight, which could give a further hint of the direction for the RBA, which has far and away the highest policy rate among the G-10 banks. That means that the AUD should also have the highest potential for beta as moves in interest rates can be quite large for Australia relative to the virtually non-existent expectations for the major currencies. RBA expectations for the coming 12 months have been holding just above the 0 level since a brief dip into negative territory in early July that coincided with the lows for AUDUSD. The market will be on the lookout for more caution in all likelihood - but while Australian officials are no doubt fretting developments abroad, the domestic data has remained relatively resilient, though there are some very worrying signs in the housing market and consumption data has been relatively flat. Is it enough to move the outlook from flat to negative? Not likely at this time, though the shifting sands of risk appetite could move the RBA expectations more than anything the RBA has to say in the coming days as most central banks are in wait and see mode. Meanwhile, the AUDUSD has teased with a bullish reversal on the daily candlestick today after last week's engulfing bearish candlestick. To boot, the pair traded on both sides of its 200-day moving average today. For the AUD to get some support here, we'll need neutral to hawkish RBA minutes and a continued recovery in risk appetite in the coming couple of sessions.

Tomorrow we get UK inflation data (a high level should be GBP negative as the BoE has declared that inflation should fall - and high inflation rates with a complacent central bank shouldn't be considered positive. GBPUSD looks expensive at the in the short term here on an interest rate spread basis, but let's see where the data and GBP sentiment take us tomorrow. We also have the BoE minutes up on Wednesday.

Chart: GBPUSD

GBPUSD traded up against important levels today near the 200-day moving average and the old high just above 1.5520 that is acting as support. The next couple of days of UK inflation releases and the Bank of England minutes are likely to provide for further support or a swoon down through the important support levels here. Interest rate spreads at the forward end of the curve suggest more risk of downside.

Also tomorrow we have the US PPI data for July and the Housing Starts and Building Permits data for July as well.