Weekly Outlook

The world looks like a decisively different place this morning and I can assure you none of it has to do with the monster hangover I dealt with all day yesterday after the bank’s Christmas party on Saturday night. What I am referring to is the market’s reaction to the NFP data out of the US on Friday afternoon. Now I have never been one for conspiracy theories but something in my view is certainly rotten in the state of Denmark. I refer specifically to 3 independent factors that together make me think that there is more to this number than at first meets the eye, in chronological order they are:

1. A White House comment/statement made on the eve of the report purporting that the data will be staggeringly better than previous releases (bare in mind that no such statement had ever been made)
2. The data is released 30 seconds too early, taking the market a little by surprise.
3. And finally of course the number itself! How does that happen? How does such a major reversal of fortune occur, seemingly overnight?

Anyway you paint this thing there is clearly something wrong and of course the ensuing price action confirmed just this. Now I know I’ve spoken about the correlation matrix previously and the fact that risk and USD have been inversely correlated for nearly 18 months now, but we saw a massive decoupling of this relationship on Friday and to a smaller degree a continuation this morning. While I welcome this movement I am not entirely ready to ring in the changes as being permanent. If you look at the IMM positioning as of the close of last week you may just get a feel for why the market has moved the way it has, in fact simply cleaning out record short USD positions.

So the obvious question is where to from here, honestly I don’t really know. Year end is fast approaching and moves are going to become even more erratic as the obvious liquidity and holiday issues begin to play a bigger part. My conservative advice is to start saving your pennies for next year and limit yourself to fundamental moves should you be able to find them. For the record I favor the following for the week ahead:

AUDNZD: Still short, still waiting.
GBPUSD: Still short, counting my profit.
USDCAD: Waiting to sell on rallies into 1.07/0800
USDJPY: Seller into 90.30/80 with stops above 91.30.

On the data front it is central bank focus all the way with the likes of Canada, New Zealand, Switzerland and England all announcing official cash rates this week. Of these most interest and potential market movement will come on the back of the SNB and quite possibly Canada so as per the above comments look to sell the rally in the USDCAD.