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Of the few economic listings on the docket Monday, a top billing was Japan’s July trade report. According to the Ministry of Finance’s figures, the nation’s deficit ballooned more than expected to ¥1.024 trillion. Aside from representing the third largest trade short-fall for this global exporter, the data is particularly concerning for those that believed the yen’s nearly one-third depreciation in value over the past year would help strengthen the economic and financial position. This piece of data adds yet another element to policy watcher speculation that BoJ Governor Kuroda will step up verbal intervention at this week’s Jackson Hole gathering. That is unlikely, though, as the central bank has already implemented an unprecedented program and it is showing progress. Further warning would likely be seen as attempted currency manipulation.

British Pound Unable to Leverage GBPUSD BreakoutHaving overtaken 1.5600, the benchmark GBPUSD marked two milestones: climbing over the mid-point of 2013’s historical range and breaking a descending trend of peaks that began with January 2nd's peak high. This move is a technical spark that could theoretically ignite a combustible fundamental backdrop. Given the meaningful reversal in economic performance for the UK and the Bank of England’s (BoE) rejection of a stimulus program to compete with the Fed or BoJ, there is plenty of recovery the sterling could still do. And yet, the cable has been slow to extend its retracement – as have been most pound-based crosses. Perhaps the sterling’s advance will be curbed until the UK 10-year government bond yield can overtake counterparts like the US equivalent - it has traded at a discount for three months.

Australian Dollar Worst Performer Monday ahead of RBA Minutes

The Australian dollar fell against all of its major counterparts in the opening session of the week – between a 0.4 percent slip against the kiwi and 1.1 percent tumble versus the Swiss franc. In a clear fundamental thematic shift, there has been a significant deviation between the Australian currency’s performance and the outlook for its yield. As a ‘carry currency’, the yield the Aussie dollar provides is vital to bearings. Persistent fears of rate cuts from the Reserve Bank of Australia (RBA) have weighed since the dovish regime began. Now, however, the outlook has leveled out according to swaps with virtually no speculation of further easing. If that were the only factor, the AUDUSD would likely retake 0.9300 and extend a recovery. Yet, there is another aspect required: an appetite for yield. Currently, the carry differentials are just off record lows and the Aussie dollar has retraced only a fraction of its gains. Perhaps the RBA Minutes will compensate with further confidence of no cuts.

New Zealand Dollar Traders Look for Confirmation of Rate Forecasts

Though the Reserve Bank of New Zealand’s (RBNZ) first rate hike won’t likely come at least until the opening of 2014 – as warned by Governor Graeme Wheeler – the market is nevertheless clear on the outlook for the country’s benchmark rate…and its significant contrast to the rest of the majors. Overnight index swaps from Credit Suisse are pricing in approximately 86 basis points worth of hikes (near certainty of three quarter-percent hikes to bring us to 3.75 percent and debate as to whether we reach 4.00 percent) within 12 months. This is the most hawkish consensus from rate traders we’ve seen since in 24 months. In turn, the markets have taken heed. The kiwi dollar is up against all its major counterparts in the past two weeks while the 10-year government bond yield has extended its rally to a near, two-year high of 4.67 percent. Coming up, we have the two-year inflation outlook for the third quarter. A turn from 2Q’s 13-year low would be welcome by bulls.

Gold Quickly Drops Back Below 100-Day Moving Average

Spot gold won a remarkable milestone Friday – the metal’s price closed above its 100-day moving average for the first time in 177 trading days. What does this mean for investors, the metal’s aggressive tumble starting this past October was finally putting up a meaningful enough correction to cool its heavy selling momentum. Yet, just as quickly at this turn of fortune seems to have been made, we find the bulls are struggling to turn the correction into a lasting bull trend. Monday, the metal closed lower for the first time in four trading days while the CBOE’s gold volatility index advanced to 24.3 percent. Meanwhile, ETF holdings of the precious metal have leveled off to set the stage for the most convincing turn since the 25 percent divesture began in February. Yet, the COT figures also reflect the hesitation for reviving the bid with net speculative futures exposure growing only 2,291 contracts through last Tuesday. If the dollar doesn’t drop off, the drive will be difficult.

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--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

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