Waiting on the ECB

* Sparse data
* Range bound currencies
* August rate cuts
* Kuroda downplays helicopter money

And now. Today’s A Pfennig For Your Thoughts.

Good Day. And welcome to Thursday morning. As Chuck mentioned yesterday, he will be out on vacation until August 1st so it’s going to be another collaborative effort until his return. We don’t have the customary intro from Frank this morning, so today’s Pfennig is going to be a little shorter than normal. With that said, let’s jump right into it.

Except for precious metals, yesterday turned out to be a fairly quiet day in the neighborhood as the only US data released was the weekly mortgage application report. With nothing out there really moving the markets, the ping pong game involving the Fed’s rate path took center stage and the ball was lobbed over to the hike side of the table for the time being. We’ll have more data on tap this morning, but nothing that holds a ton of weight. Since it’s Thursday, we’ll get the weekly jobless numbers and then we’ll also see the June existing home sales and leading indicators. Tomorrow will be another quiet one as we only have the Markit manufacturing index.

With the Fed rate hike talk heating up, the dollar remained in the captain’s seat all day long. The pound ended the day as the best performer with nearly a 0.50% gain while the euro finished the day in a breakeven scenario. Just to give you an idea, the high and low for the euro was 1.1030 and 1.0982 respectively, so it remained in a holding pattern throughout the day as we were nearing this morning’s ECB meeting. Since the euro was flirting with a positive return, the Swedish krona and Norwegian krone were right on the euro’s heels.

Otherwise, most of the other currencies finished with the day with marginal losses. The Australian dollar and New Zealand dollar were at the lower end of the spectrum as they both lost about 0.4% on the day. The markets are increasing bets that we could see rate cuts from both central banks at their respective meetings next month. The Japanese yen had another tough day and finished in last place with nearly a 0.75% loss when it was all said and done. Before Chuck left the office yesterday, he wanted to share some thoughts about the yen, so here you go.

“I’ve written a lot lately about Japan, and how I feel the currency was unjustly moved higher a couple of weeks ago because of the so-called Safe Haven buying, and that I feel that yen should be much weaker. But to be fair and balanced, I ran into a report from Barclays, where they continue to forecast significant yen appreciation over the coming year. Let’s listen in. “While PM Abe’s election victory raises the medium-term risks of a blurring the lines between fiscal and monetary policy, we do not see “helicopter money” as a reality; hence, we continue to view policy as constrained in deterring yen strength.”

So, there you go! Chuck thinks yen should be weaker, and Barclays with all their highly paid researchers and economists, in other words a big team, VS just Chuck, thinks that yen should be stronger. It’s an old-fashioned tug-o-war. Who will win? I guess we’ll have to wait-n-see, eh?”

Thanks Chuck. As I mentioned up top, precious metals had a tough day as gold lost about 1.25% and silver fell about 2.5% while the news wires didn’t offer much in the way of additional insight. In the brief research that I found, the fall in gold and silver primarily stemmed from the increased perception that we could see the Fed come in with a rate hike by year end. That combined with a general bout of profit taking pretty much summed up the day.

As I came in this morning, we are still seeing most currencies stuck in a tight range with a bias toward a weaker dollar. The ECB is meeting this morning, in which they are expected to keep things on hold, so I think the markets don’t want to get ahead of themselves in case they do something unexpected. The yen gained back all of its lost ground from yesterday after the Bank of Japan Governor poured water over the idea of helicopter money being a viable option at this point, so the currency is up about 0.50% so far. The New Zealand dollar is at the bottom of the pile and trading in the .69 handle after their central bank continues flashing the lights for an August rate cut.

Other than that, its shaping up to be an uneventful day. Until next time, have a great day!

Currencies today 7/21/16. American Style: A$ .7485, kiwi .6966, C$ .7665, euro 1.1014, sterling 1.3182, Swiss $1.0131, . European Style: rand 14.2833, krone 8.4789, SEK 8.5957, forint 285.35, zloty 3.9620, koruna 24.504, RUB 63.95, yen 106.30, sing 1.3549, HKD 7.7553, INR 67.1803, China 6.6872, peso 18.6150, BRL 3.2510, Dollar Index 97.025, Oil $45.56, 10-year 1.59%, Silver $19.35, Platinum $1,081.25, Palladium $667.00, and Gold. $1,318.50

Mike Meyer
Vice President
EverBank World Markets