FXS: The commodity currencies, euro and pound open higher
The financial markets traded divergently overnight. The commodity currencies, euro and pound open higher, the Swiss franc lower and the yen sideways. Thus, the Swiss franc crosses are in the limelight. The temporary decline in the gargantuan Chinese trade surplus provided a trigger for profit taking in the overbought Swissy. In the meantime, the Asia/Pacific stock markets closed mostly higher, all the European bourses are trading slightly lower, while the gold and oil are slightly higher. The US indexes are up in pre-open market.
With officials in both Japan and Switzerland verbally talking down their overbought currencies, the pressure on them should persist today. This would imply strength in the other the European currencies and the commodity currencies, but the franc should remain the exception.
The short-term outlook is slightly bullish for most of the European and commodity currencies and sideways to slightly bearish for the yen and Swissy. The outlook holds for as long as the US indexes advance today. The medium-term outlook is sideways for the euro, pound and Canadian dollar and bullish for the yen, Swiss franc and Australian dollar. My model is long on the Dow Jones CME FX$INDEX and all of the foreign currency futures except for the euro and pound.
This Analysis Is Based On My Books, As Follows:
“Trading in the Global Currency Markets” - Prentice Hall Press, 3rd edition 2007
Overnight:
Japan: GDP for the second quarter was revised upward to 0.4% from the preliminary reading for +0.1%.
China: The trade surplus eased to $20 billion in August from $28.7 billion in July.
France: Industrial production increased 0.9% in July and 6.4% year-on-year.
Italy: Industrial output edged up 0.1% in July after a 0.5% rise in June. Industrial production rose 4.8% year-on-year, down from a revised 8.1% increase in June.
Italy: GDP was revised up to 0.5% from 0.4%on the second quarter.
UK: Factory output prices rose 4.7% in August on an annual basis compared to a 5% increase in July. Meanwhile, annual input price inflation slowed to 8.1% from 10.8%. On a monthly basis, output prices were unchanged, while input prices fell 0.5%.
UK: The Conference Board leading index climbed 0.2%, slower than the 0.5% rise in June.
