Goldman Sachs Spot Desk Strategies

EUR

The erratic choppy price action continues, the market is rebuilding its bias to be short with notable buying of euro downside yesterday. In a throwback to a couple of years ago people are again focusing on the risk posed by Greek politics and the threat of a Syriza government. US rates have stabilized but whilst USDJPY has rallied, EURUSD is range bound and the pain trade would be a squeeze through the recent highs. I remain flat and flexible in reaction to the whippy rather than directional tone of the market. Resistance seen at 1.2840 followed by the 1.2887 recent high, with support at 1.2740/50 and 1.2720.

JPY

A period of calm in the G10 space following the violent moves of late, with investors left contemplating the vast contractions that have hit the markets over the past 72 hrs – not to mention the added spice of further periphery woes raising their ugly heads in Europe once again. USDJPY held its respective levels yesterday as the London morning session saw yet another round of liquidation in US FI – the 105.50-105.00 band of support is now becoming very interesting – top of the Ichimoku Cloud, Jan 2014 highs and low on Wed following the ‘’mini’’ flash crash. Overnight the Reuters Tankan Report once again demonstrated a worrying decline in both Manufacturing and Non-manufacturing sentiment in Japan, however given Governor Kuroda’s recent speeches, it appears only a dip in CPI will shift the BOJ off its current stance. We have tentatively entered into a long USDJPY position and will monitor other assets classes closely today, with a tight stop sub 105.50, looking for a move back towards 107.00.

GBP

BoE’s Haldane’ statement that “interest rates could stay lower for longer than I expected 3 months ago” saw a 40 pip sell-off in Cable this morning, though the comments seem to largely reflect the moves already seen in rates. The reaction in EURGBP was much more limited, only up 10 pips. Overall, the recent moves in Short Sterling have now pushed the first fully priced in UK hike to October of next year from early Q2 back in September. To that end, next week’s BoE minutes will be watched to see how the members react to the moves in rates and global growth concerns. However, in the short-term, the market is still very skittish and today’s trading is likely to once again be reactive to any move in equities or rates. Levels: GBPUSD,  support at 1.60 the figure with 1.5940 below and 1.6120 as the resistance. EURGBP: 0.7900 is the support and resistance is Wednesday’s high of 0.8043.

AUD/NZD

Both AUD and NZD continue to prove range bound. An erroneous repeat of Septembers RBNZ reference to the currency remaining “unjustified and unsustainable” sees NZDUSD on a round trip from 0.7935-0.7878-0.7935 – the market still chasing its tail after the rash moves earlier in the week. The global picture still remains far from clear cut, but the idea of selling Kiwi towards 0.7995 with a stop through 0.8050, looking to take back towards 0.79, appears OK risk reward. NZ inflation is expected to come in towards the lower bound of the RBNZs 1-3% target – the Aussie print 24hr prior traditionally a decent gauge. Whilst the market expects the Australian Q3 print to come in below Q2 (trimmed mean the RBAs preferred measure), 2.3% on a headline (or 2.7% trimmed) YoY is hardly alarming given the misses we have seen across the rest of the globe. Whilst the expected knock on from the repeal of the carbon tax is estimated to be roughly 70bps by the Treasury, some banks are calling for slightly less of an impact given it only added 25bps or so “on the way in”.

CAD

The rebound in oil in the latter half of yesterday’s session eases USDCAD from a 1.13 handle, with all eyes on the September CPI at lunchtime today. Whilst the forecasts are expecting little change from August figures, taking into account the global misses over the past few sessions, the risks appear skewed towards the downside. That said, based of the BOC projections from July (next update due at next weeks meet), the core measure could potentially drift towards 1.8% without raising serious concerns. Yesterdays manufacturing sales figure, even once you strip out the volatile transportation component, came in on the weak side at around -1%. Deteriorating terms of trade are being touted as the next potential driver of USDCAD higher – continued pressure on oil, lack of authority/control from OPEC nations on supply, and relatively high cost of production (transport costs) in Canada all potential drivers. 1.1220 is the first level of support ahead of the Canadian NFP knee jerk low of 1.1160 and will look to engage in the short CAD trade towards 1.12.

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