JPY Correction Scenario Heating Up
Saxo Bank | Jul 10, 2013 07:36AM ET
USDJPY plunged overnight on hardly any development as the technical arguments for a deeper JPY correction, though a trio of event risks lies ahead in the form of FOMC minutes, a Bernanke speech, and the BoJ meeting.
The EURUSD moved lower “ahead of schedule” rather than waiting for today’s Bernanke speech or the FOMC minutes as first we had the announcement yesterday afternoon that the US bank regulators will move forward with new rules aimed at keeping a much higher capital leverage ratio at the TBTF US banks, and then the ECB’s Rasmussen was out with rather dovish talk in which he detailed that the “extended period” for low rates mentioned in Draghi’s press conference mean more than 12 months and that, when specifically asked, he wouldn’t rule out another LTRO. There was even the cherry-on-top of an S&P ratings agency downgrade of Italy’s sovereign debt in later US hours that saw the lows of the day posted quickly before the the Euro bounced back again. We can all dismiss the ratings agencies’ moves as irrelevant as market movers, but a lot of analysis goes into their ratings decisions, and remind us that we are no nearer a structural solution to Italy’s or the rest of the periphery’s debt load than we were two years ago.
China’s trade data looked positive on the surface, with the large surplus of $27 billion, but the number is not seasonally adjusted and was actually down -3.1% on the year before for exports (not to mention the unknown of how “clean” the data set is in terms of data collection because of widespread export over-booking problems).
Japan’s consumer confidence survey slipped to 44.3 in June from 45.7 in May, the largest dip since the advent of Abenomics and since the Fukushima disaster of early 2011. This is a natural response to the incredible market volatility that started in late May.
Looking ahead
Let’s see if today’s FOMC minutes or speech by Bernanke brings any surprises. No matter how the Fed tries to package the message that it is merely looking to slow the rate of purchases and is not “tightening” per se, the reduction of flow from a future tapering of asset purchases is still a game changer for markets, which have been bulled up to unsustainable heights this year on the promise of easy liquidity forever. And the Fed is sending this message as the remainder of the central banks are clearly in a dovish stance, thus the USD rally. That being said, the risk near-term for the dollar is that the FOMC minutes complain about the vicious move higher all along the curve in bond yields – a la Carney’s comments at the recent BoE meeting – with accompanying rhetoric saying that the Fed can move either way.
Get The News You Want
But the above would likely merely trigger a quick squeeze on positioning, if at all, as the overall message remains the same that the Fed is moving toward less accommodation – and perhaps more importantly is at least partly doing so due to financial stability concerns and its new responsibilities as banking regulator.
Bank of Japan
We have a bank of Japan meeting tonight. As bond markets rally, this has taken some of the pressure of the JPY. I suspect we mostly get radio silence in terms of policy from Kuroda and company tonight and things may stay relatively quiet on the policy front as well as we await the results of the upper house elections next weekend. Technically, the arguments in favour of a JPY rally are looking better after last night’s moves. The move in USDJPY, as I squawked earlier, is interesting, because it keeps the pair below the upper bound of the daily Ichimoku cloud. And EURJPY looks interesting as well for a full scale correction lower as well with this latest bout of weakness.
Chart: EURJPY
Still looking for a possible test of the downside boundary of the Ichimoku daily cloud for EURJPY at just below 126.50, and if we are launching an all-out C-wave correction a test of those sub- 125.00 lows and well beyond could come into play.
The commodity currencies are enjoying the Euro weakness and USDJPY weakness (AUDUSD popping above local resistance), but I suspect it is a merely a question of finding new levels to short, as they only seem to catch a mushy bid when the do rally in halting fashion. A cross like GBPNZD I wouldn’t expect to continue much lower from here – though neither am I a fan of stepping in front of onrushing trains. Australia’s employment report is out tonight – it’s an interesting one as we saw a neutral report last month and there are often wild swings from month to month. I look for the unemployment rate to begin rising to toward those 2009 highs of 5.9% again in the months ahead.
Economic Data Highlights
- Japan Jun. Domestic CGPI out at +0.1% MoM and +1.2% YoY vs. 0.0%/+1.2% expected, respectively and vs. +0.5% YoY in May
- Australia Jul. Westpac Consumer Confidence out at 102.1 vs. 102.2 in Jun.
- China Jun. Trade Balance out at +$27.12B vs. +$27.8B expected and +$20.43B in May
- Japan Jun. Consumer Confidence Index out at 44.3 vs. 45.6 expected and 45.7 in ay
- Sweden Jun. Unemployment Rate rose to 4.4% vs. 4.0% in May
- Norway Jun. CPI out at -0.4% MoM and +2.1% YoY vs. -0.3%/+2.1% expected, respectively and vs. +2.0% YoY in May
- Norway Jun. Underlying CPI out at -0.3% MoM and +1.4% YoY as expected and vs. +1.4% in May
- US May Wholesale Inventories (1400)
- US Weekly DoE Crude Oil and Product Inventories (1430)
- US Fed releases minutes of FOMC meeting (1400)
- US Fed’s Bernanke to Speak (2010)
- New Zealand Jun. Business NZ PMI (2230)
- Australia Jun. Employment Change and Unemployment Rate (0130)
- Japan BoJ Policy Statement (no time given)
- Japan BoJ’s Kuroda Holds Post-meeting press conference (0630)
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