USDJPY Eight-Year High Opens Up 124.00 Path
Saxo Bank | May 26, 2015 06:57AM ET
- USDJPY smashes through 122.00 barrier for for first time since 2007
- Next target for pivotal pair is at 124.00, says Hardy
- EURUSD homing in on 1.0900 area as one-month vols hit 14%
- Oil rig count stabilisation indicates $60/b oil profitable, says Hansen
- Gold-euro rising as Greece fears weigh, but XAUUSD heads below $1,200/oz
- Classic bonds correlation returns to send bunds back to 154.50
- Spain anti-austerity party win in local elections poses Eurozone threat, says Boye
- Ryanair rejoices as strikes elsewhere drive traffic up 11%, says Koefoed
Rising stun
From the Floor's waited such a long time for USDJPY to break out of its range that it had quite forgotten what it was like to have its head above the parapet. Not anymore though as the pivotal pair smashed through the 122.00 barrier to hit its highest level since 2007.
"This is such an obvious resistance line that was nearly touched first in December and then again more recently and it is very critical that has now happened," says John J Hardy, head of forex strategy at Saxo Bank. "The next target is 124.00."
At 0655 GMT, USDJPY was at 122.53.
"We've become so accustomed to poor data out of the US that the CPI upside surprise on Friday showed that the market has just been waiting to jump on the dollar bandwagon," says Hardy. Hardy has a warning though for the USD bulls not to get too carried away.
"We've got a Q1 GDP revision figure coming up on Friday and the expectations for that is all the way down to minus 0.1% and the bulls will be dreading this," he says, speaking live from the Copenhagen floor.
Nevertheless, the dollar looks set fair to make some hay with EURUSD also under severe pressure around the 1.0900 zone.
"There is a fairly minor resistance point at 1.0880 and then we've got the bigger target at around the 1.0750 zone," he says.
EURUSD was at 1.0916 at 0655 GMT.
Cable too could also come under the dollar cosh as the post-election GBP rally potentially faces its death knell today if UK retail figures disappoint, opening up a path towards sub 1.5100 territory.
Here comes volatility
It may be something of an exaggeration to say that volatility is back after all this spot activity, but it is certainly rising in some of the key pairs, Jeppe Norup from the FX Options desk says.
One-month USDJPY rose to 8.7% vols once the USDJPY range breakout at 122.00 was confirmed but he points out that this was from a relatively low figure, adding that "spot continues to outperform implied vols."
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One-month EURUSD rose to 14.7% vols taking volatility back to 2011 levels.
Oil's turning point
Has oil reached a turning point? The rig count was down by just one for last week. And Ole Hansen from the Copenhagen commodities desk says this could indicate that the $60/barrel mark is exactly the point at which much of the US shale sector can re-enter the market at a profit.
"Producers are maybe starting to take advantage in the stabilisation of prices indicating that profitability is at around the $60/b mark," says Hansen. "With that rig count only down one, this will bring back more supply to the market."
For now, however, it is geopolitical concerns that are helping to keep support for prices and ensuring that the attempt to take WTI crude below $58/b last week was unable to sustain momentum.
"ISIS militants have been very active and are getting close to Baghdad," he says. "Geopolitics for now is keeping the market supported."
Brent crude was at $65.33/b at 0655 GMT. WTI crude was at $59.60/b.
Fool's gold
That may have been reflected in the drop in net longs for WTI this last week in stark contrast to gold which saw a spectacular rise of some 50,000 positions to rise to 86,000. "There are a lot of new longs in the market," says Hansen, pointing towards silver too which saw a 27,000 rise in net long positions.
As far as spot is concerned, that appears to be translating into some strength for XAUEUR, possibly on the back of Greece concerns, but against the dollar, it's a familiar old story.
"XAUUSD is in at around the $1,194/oz area and below that is a very familar resistance zone at $1,180/oz," he says, indicating gold's recent push towards $1,225/oz may be over for now.
Bunds haven
Whether gold's safe-haven status is coming under threat or not, bunds seems to be in the process of re-establishing its classic safe-haven reputation after the volatility of two weeks ago, rising to 154.50 this morning.
"It's a return of the classic correlation between risk-off bunds and the periphery with German bunds rising and Italian bonds falling," says Michael Boye from the Fixed Income desk.
The immediate cause may have been that stunning anti-austerity victory for Spain's Podemos party in local elections this weekend, "a swing which poses a threat to the Eurozone project," says Boye, and further down the line if they can hold on to their gains in the national elections in December.
Greece too continues to bubble under and sometimes over, as this weekend's headline-grabbing intervention by the interior minister demonstrated.
"There is no way we can rule out a referendum, new elections or a cut off of loans, capital controls or even a parallel currency scenario although the latter has a low probability," adds Boye.
And finally...
From the Floor is fond of its little luxuries and one of those is most definitely first-class travel with all the accompaniments. But it still can't help noticing that budget airline Ryanair, notorious in the past for its questionable customer service, continues to rebuild its reputation and more importantly, its bottom line.
"Ryanair beat expectations with profits up quite a lot," says Mads Koefoed, head of macro strategy at Saxo Bank. "It saw traffic rise by 11% and expects a further rise of 4-6% in future traffic," the budget carrier, it seems, having profited from strikes around Europe that turned world-weary customers towards Ireland's go-getting airline.
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