Talking Points:

Dollar Cheered in Press, But Data and Fed Chatter Turning
Euro Faces Bloated Calendar Between German Jobs and Eurozone CPI
New Zealand Dollar Suffers Another Collapse as RBNZ Confirms Intervention

Dollar Cheered in Press, But Data and Fed Chatter Turning

Despite the boom in headlines and volatility measures, risk aversion has yet to set in. At the same time, the market’s bias on the Fed’s drive towards its first rate hike has moderated somewhat. These are the key fundamental drivers for the greenback; and after an 11-week rally, the high water market for continuation is pretty high. On the rate speculation front, the collective data and central bank speak was not conducive to further gains. The Fed’s preferred inflation gauge (the PCE)cooled further to 1.5 percent – though it wasn’t as sharp a slowdown as was expected. Meanwhile, perpetual dove Charles Evans from the Chicago Fed reiterated his belief that language of a more imminent hike should be dropped while further making mention of the high dollar. Neither update is definitive, and the quality of today’s docket is in a similar category. FX traders should instead watch volatility measures closely. If a more systemic capital shift is triggered, the greenback may continue its charge.

Euro Faces Bloated Calendar Between German Jobs and Eurozone CPI

The Euro gained ground against all of its major counterparts Monday – though it was a very modest advance. Top event risk though the opening session did little to inspire the bulls. Eurozone sentiment figures for September were still mired in the fear of a stalled recovery and Germany’s CPI figure for the same month offered little hope of stabilization. From the capital markets, the region’s equity indexes were stained red and periphery bond yields advanced. Technical reprieve likely comes as the market holds its breath in anticipation of forthcoming event risk. Today, we have Germany employment data which is good for volatility; but the Eurozone unemployment rate and CPI data are important lead-ins to Thursday’s ECB rate decision. Whether the policy authority introduces its asset purchase program details or not weighs heavy.

New Zealand Dollar Suffers Another Collapse as RBNZ Confirms Intervention

With the New Zealand currency already suffering a near, 1,000-pip drop (versus the dollar) in less than three months; policy officials are redoubling their effort to find exchange rate relief. Last week, the currency was driven lower by surprisingly explicit threats by the RBNZ Governor that an ‘expensive’ currency could warrant intervention. This was more than enough to drive NZDUSD 0.8000. Yet, that wasn’t enough. Over the weekend, the central bank reported data that showed that it had sold a net NZ$521 million last month – the most in seven years. To reinforce the effort, Prime Minister John Key (formerly Merrill Lynch’s global head of FX) said the intervention was appropriate and he saw a fair value for the exchange rate closer to 0.6500 – more than 1,000 pips lower.

Japanese Yen Faces a Wave of Data but Still Doesn’t Change Gears

The Japanese economic calendar has been begun a serious run of important event risk this morning. Follow on last week’s inflation figures, the August employment and consumption figures this week are showing greater deviation from consensus…and yet, they are garnering the same level of disinterest through Yen volatility. On the employment front, the August unemployment rate dropped unexpectedly to 3. 5 percent to match its lowest level since the close of 1997. Meanwhile, overall household spending dropped for a fifth consecutive month and industrial production slipped. Ahead, we have small business confidence and Takan 3Q figures; but the market’s real interest rest with ‘risk trends’.

Chinese Renminbi Drops Alongside Hong Kong Dollar on Protests

Protests in Hong Kong are unnerving investors in Asia. Heightened tensions in the country over universal suffrage with the 2017 election of the city’s leader escalated over the weekend in clashes between protestors and policy. Though the government has announced it was pulling back its riot force, there seemed little relief in the market’s anxiety. The Hang Seng equity index dropped 1.9 percent to start the week and is currently down another 1.5 percent in the new trading session. As for the Hong Kong Dollar, has tumbled 173 pips in the three day’s through Monday. That may seem inconsequential, but the average daily range for USDHKD over the past month was only 6 pips. The political and economic connections would spill over for mainland China as well. The Chinese Renminbi dropped 340 pips versus the dollar – the most in 3 years.

Emerging Market Currencies Extend Tumble, Capital Flight Picking Up Pace

Though risk aversion may not be universal, it is certainly showing through in emerging markets. On the capital market side, the MSCI’s ETF gapped to open the week and close out Monday down 2.0 percent. That is two 2 percent declines in the span of less than a week when we haven’t previously seen a bearish move of this magnitude in six months. The financial market concern of a developed-world slowdown, Fed shift away from accommodation and global volatility is clearly taking its toll with EM default premiums rising and the segment’s volatility measures hitting five month highs. On the currency side, liquid and thinner units alike suffered. The Brazilian Real maintains its unceremonious descent versus the USD losing another 1.1 percent to approach six-year lows.

Gold Works Deeper into Consolidation as Futures Traders Sell Longs a Sixth Straight Week

The walls are contracting for gold. The precious metal slipped a modest 0.2 percent on the day (to $1,215.81), but this was hardly a contribution to a prevailing trend. While the past 11 weeks have generally supported the bears, the past two have leveled off from the slide. The market is now carving out a diminishing range with extremes around $1,232 and $1,208. This quiet trading band belies a more active backdrop in positioning. At the end of this past week, we learned speculative futures traders cut their long exposure for a sixth consecutive week – the longest streak in 16 months. We haven’t seen a seven-week drop since November 2008. Meanwhile, ETF holdings have dropped to a five year low. Peace and quiet looks even less likely on activity. Futures volume is building in this range and its Volatility Index is trending higher. **Bring the economic calendar to your charts with the DailyFX News App.

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