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WEEKLY WRAP: Q3 to kick off where Q2 ended (volatile)

Q2 certainly offered traders the volatility they had been missing but, perhaps to some, came in higher and faster than expected. With plenty of macro themes and calendar event lined up then we can safely assume this trend to continue.

Large Speculators reported positions (data from CFTC)
- Not surprisingly we have seen some big shifts between the currency flows from last week but the distortions remain. We can see how the large speculators have reduced their long exposure to the Greenback but this is when traders assumed the FED's September rate hike was dead and buried. We have since heard hawkish comments from FED members which helped the Greenback regain 3.9% in the 2nd half of last week, which contrasts what we see on the positioning data above. 
- JPY continues to benefit from safe-haven inflows and likely to as we approach the next FED meeting, and uncertainty of China remains. 
- Traders are seemingly betting on a further rate cut from RBA with speculators positioned their most net short since March this year. 

US Dollar: Technically the USD Index made a failed attempt to break below 93 and confirm a Double Top. Instead it rebounded sharply with USD Index (DXY) seeing its widest trading range since May 2010, at 3.9%. The USD This month, like many preceding it, is likely to be dominated by FED comments around China and the first rate rise. Nonfarm payroll on Friday is the final print before the next FED meeting so expect a lot of hype around it, as an unexpected soft data set will send a shock to the system and see USD sell off sharply. Investors are making lots of rash decision in such volatility so I do not expect trends to be plain sailing for the next few weeks. 

Australian Dollar: The RBA meeting tomorrow will be of great 'interest'. Not because I expect to see a rate cut (as I expect this to come later in the year) but because we get to hear what board members have made of the recent rout in China and likelihood of FED raising rates. UDUSD produced a Rikshawman Doji below 72c resistance so a break below 70c remains on the cards and AUDJPY, like NZDJPY, appears poised for further losses in the weeks ahead. 

British Pound: PMI data for manufacturing, services and construction is at the helm this week, with any strength or weakness providing traders a way of gauging how soon (if at all) BoE will raise interest rates, with GBP crosses following suit.  GBPUSD produced an elongated Bearish Engulfing Candle so we have likely seen a significant swing high on W1. GBPCAD also produced a Bearish Engulfing candle on W1 with a large upper wick to denote weakness ahead at the multi-year highs. The current leg of the bull rally has lasted 18 weeks so a pullback is not off of the cards. However price meanders above the bullish trendline form May '15 lows so we can use this a line in the sand for bullish and bearish setups this week. 

Canadian Dollar: Futures have rebounded slightly off of the multi-year lows, helped by a stronger Oil price which has also seen a bullish close after many weeks of heavy selling. Both markets remain technically bearish amid a correction, so seeking areas of resistance to sell into remain the favoured approach. Calendar highlights include Trade Balance, Employment, GDP and Ivey PMI, so plenty to see volatility remain. GDP data is expected to tick higher 0.2% which could see further strength but, before we get too hopeful, there has only been one expansion this year so far.

Euro: Euro crosses produced extreme whipsaws for currency traders last week. It had previously behaved as a safe-haven whilst USD sold off in light of China woes, but with this now on the back burner and Greenback regaining strength it appears domestic news has had little to do with the movements. Today sees German Retail and Eurozone flash CPI data to kick start the week off, with ECB press conference and bid rate announcement being the main calendar highlight on Thursday.  

New Zealand Dollar: Kiwi crosses suffered the most extreme movements among the majors last week around the China debacle as Carry trades were unwound at breakneck speeds. Having recouped between 30% to 50% of some losses last week we view this as corrective and for losses to resume over the coming weeks. Today has seen business confidence at its lowest level since 2009 so a gloomier economic outlook (and further rate cuts) appear likely. 

Matt Simpson | Senior Market Analyst


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