Saxo Bank | Apr 10, 2013 06:44AM ET
The AUD/USD is testing above 1.0500, and the EUR/USD is checking out the first major retracement levels ahead of a key batch of FOMC minutes up this evening. Meanwhile, new JPY lows continue.
The U.S. dollar continues to struggle, as it has regressed back to trading like the flipside of risk appetite now that the “US leading the recovery” story has been at least dented, if not smashed, by the latest round of weak U.S. data. The euro is strong as the ECB remains in a holding pattern (wildly hawkish compared to the exuberant money printing from, in order from least to most, the BoE, the Fed, and especially the BoJ). Japanese investors, long used to a bond-investing mentality, may look at the fat yields available at the European periphery and want in on the action. The damage this will inflict on Europe from a strong currency/weak demand perspective is obvious, and the political resistance to further EUR/JPY appreciation will accelerate from here. It’s always a question of how long trends can extend before they are exhausted. One also wonders how far we are from an ECB easing of any kind.
Zero Hedge reposted an interesting piece by Chris Martenson: he says the BoJ is is essentially eroding trust in the Japanese currency ,and scaring savers out of holding cash. As he and the likes of Richard Koo have said, expanding the monetary base in an economy like the current one in Japan or the U.S. does not have the textbook effect it is supposed to have at present. It certainly is a risky experiment, particularly as JGB volatility remains very high. JGB’s sold off sharply again overnight after a couple of recent trading interruptions, and were limit down at one point for 10-years. The belly of the Japanese yield curve is actually higher relative to where it was several months ago than the long end of the curve, which came down ahead of Kuroda’s Big Move, as 5-year JGB yields are closing in on 1-year highs – admittedly that only means they are trading at 26 basis points. Let’s call 50 basis points “really interesting”. The 3-year high, by the way, was 2010’s 64 bps.
Chart: AUD/USD
The AUD/USD pair is breaking through local resistance at 1.0500, and having another go at that long-standing descending line of consolidation as the currency world goes risk-happy. Non-believers in the rally will note that we’re still below that near term 1.0600 range resistance level, and that the short end of the yield curve in Australia has failed to support this move from a fundamental perspective – quite the opposite, in fact. AUD buyers are now probably more focused on playing AUD versus the weak JPY and on the strength in equities and commodities – particularly metals. Keep a look out for the latest Australia employment report tonight after last month’s crazy positive outlier – these tend to mean revert.
Economic Data Highlights
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