Data Vacuum = Risk Appetite
We often mentioned how the lack of US economic had has repeatedly given rise to increased risk appetite, triggering weakness in the US dollar and the Japanese yen. Today is such a day with the US trade report having had little impact on the market as it not only came in line within expectations, but also due to its relative untimeliness, especially considering the Fed's focus on more currenct data reports. Further dollar weakness across the board with the exception of the yen should be the order of trading flows in the next 3 days until the release of the US retail sales report, which in fact may trigger further yen weakness/risk appetite/gains in high yielding FX vs the USD. Wednesday will be another day with a relative lack of market-moving data and so will Thursday-barring any considerable surprise in US weekly jobless claims. Risk appetite is expected to gradually take out as we approach next week's FOMC decision, with the upside for market disappointment from the Fed decision greater than that of a positive reaction.
Gold eyeing $730 before brief pullback towards $700
The rise in gold prices to fresh 16-month highs at $714 per ounce is consistent with risk-seeking trades and dollar weakness. Our target is for the metal to extend gains towards the $730 level before Wednesday's FOMC announcement, thereby matching the May 06 high (highest since 1980).These projected short-term gains are in line with expectations for a fresh all time high in EURUSD at 1.3880 and $2.0380 for GBPUSD.
More gains for Kiwi
Despite the 3% rally in NZDUSD to 0.7065 over the last two sessions, we expect the pair to exploit the current temporary surge in risk appetite to target 0.7130 and 0.7155. Wednesday's July retail sales from New Zealand could stand in the way of the rally in the event of prolonged declines following the 0.4% drop in June.
USDJPY has more legs towards 114.80
We stick with yesterday's note calling for further gains in the pair targeting the 114.30 level, facing interim resistance at 114.50. This week's reported contraction in Japan's Q2 GDP as well the temporary return of market confidence with respect of heightened certainty of a Fed rate cut next week should help weigh on the Japanese currency barring any new revelations on the US layoffs front. Barring any disappointing reports from individual US retail sales (International Council of Shopping Centers) and negative surprises from Friday's national retail sales, we expect the pair to target 115. Support stands at 114.30, followed by 113.80.