Intraday Market Thoughts Archives

When the bond market talks, other markets listen. The fear in bonds Thursday was enough to drown out some solid US economic data. It was a classic risk-off day with JPY leading and NZD lagging. Yellen speaks in the hours ahead. Falling US yields is not only a case of the US, while the rising JPY emerged amid the deterioration of risk appetite following disappointing US industrial production (which fell due to a drop in utilities/heat demand following weather improvement). We are currently sitting on a USDJPY short from April 23 Premium Insights with a 90-pip gain. Do we open fresh shorts or is it time to enter on the long side? We call into focus the meaning of the "-57000" relating to USDJPY in a never-previously posted chart.

Traders combed through a full data slate but the overall picture was solid. Most notably, initial jobless claims improved to the best in 7 years at 297K vs 320K expected and the Empire  Fed jumped to +19 compared with +5 expected.

The sore spots were in April industrial production at -0.6% vs a flat reading expected along with a disappointing NAHB home builders survey. The latter puts a negative bias into Friday's housing starts report.

CPI was a touch higher than expected with core up 1.8% y/y compared to 1.7% expected. That sparked an initial move higher in USD/JPY and yields but the moves almost instantly turned around.

Yields began sliding after Tuesday's soft retail sales report and continued down to 2.47% today, the lowest since the Fed surprised by not tapering in October. Short bonds (ie betting on rising yields) is a crowded trade and the move looks like a squeeze.

That said, when the bond market rallies, traders elsewhere take note and it manifested in a fear trade. Yen crosses remain under pressure and USD/JPY flirted with the 200-day moving average at 101.18 before bouncing back to 101.57.

The euro proved surprisingly resilient by climbing back to 1.3712 from as low as 1.3648.

The focus now shifts to Yellen delivering a speech in Washington to the Chamber of Commerce. In her time as leader so far, Yellen has been extremely guarded but there is a risk she could sound dovish if she focuses on housing or low inflation and that would weigh further on USD/JPY. She speaks at 2210 GMT.

As USDJPY retests 101.30s and US 10-year yields hit 6-month lows, is it time to accumulate fresh longs in USDJPY now that the pair is nearing its 100-day moving average for the first time since 18 months?  Falling US yields is not only a case of the US, while the rising JPY emerged amid the deterioration of risk appetite following disappointing US industrial production (which fell due to a drop in utilities/heat demand following weather improvement). We are currently sitting on a USDJPY short from April 23 Premium Insights with a 90-pip gain. Do we open fresh shorts or is it time to enter on the long side? We call into focus the meaning of the "-57000" relating to USDJPY in a never-previously posted chart.

Talking about French and German GDPs, the crucial Eurozone CPI & likely ECB options, as well as the importance of "real" yield differentials in explaining G7 currency performances. Full interview

Signs of worry in financial markets are beginning to mount as bonds surge. The yen was the best performer Wednesday while the pound was the laggard after the BOE inflation report. Japanese GDP is up later.   

One of the charts that have been on everyone's screens for weeks is the US 10-year Treasury yield. Trouble in emerging markets early in the year pushed yields lower and despite better risk appetite, they never really recovered. They never broke down either, until today.

They 2.57% level was repeatedly tested and it held. Yields were beginning to move higher again until yesterday's retail sales report added renewed pressure and today that level broke. It wasn't purely a US story. Dovish comments from the BOE and Reuters sources saying negative rates from the ECB were “more or less a done deal” sparked a surge in demand for bonds.

On the face of it, lower yields mean low inflation and slow growth. They also make the US dollar less attractive and USD/JPY slumped down to 101.72.

But it's not only a US phenomenon and with yields moving lower everywhere, the allure of ultra-low Japanese yields improves. That's most visible in EUR/JPY and GBP/JPY where longer-term support levels are giving way. Keep a close eye on those two trades.

Up next is Japanese Q1 preliminary GDP at 2350 GMT. Annualized growth at the robust rate of 4.2% is expected but much of that is due to spending moving forward ahead of the sales tax hike. Unless it's wildly out of line, don't expect much of a market reaction.

Out later are reports on French GDP and final April Eurozone CPI numbers. Keep an eye on Wal-Mart earnings in the pre-market for any hints about the health of the US and global consumer. Markets are on edge and some negative commentary could push them over. 

BoE governor Carney's post-inflation report speech gave gilt yields their biggest decline in 4 months despite the release of fresh 5-year lows in UK unemployment rate, hitting 6.8% in March. The fact that average weekly earnings growth held unchanged at 1.7%, undershooting expectations of a jump above 2.0% have also helped temper yields down. More charts & analysis here.

Here is a quick NZD alert regarding two important items from New Zealand coming up in a few hours. See charts & analysis here.

“Sell in May and go away” has proved fruitless so far this month as the S&P 500 closed at a record Monday. Risk appetite pushed the yen broadly lower while the pound led the way. Chinese industrial production, the Australian budget and US retail sales are the keys in the day ahead.

Declarations of separation hardly raised an eyebrow in markets as stocks ripped higher with the S&P 500 up 18 points to an all-time closing record. The index is also just a fraction of a point from the intraday record set in April.

The market was reluctant to break higher ahead of Tuesday's US retail sales report. The market badly wants to see signs of consumer strength in the Spring and a poor report could undercut sentiment.

Newsflow was light to start the week but it was notable how the euro failed to rally once again. EUR/USD finished unchanged on the day at 1.3757 after two unsuccessful forays above 1.3770. We were inundated with research reports advising to sell on a bounce to 1.38 or higher. The startling consensus makes us weary of chasing a crowded trade so perhaps there will be no bounce at all or the euro will rip back to 1.40.

The main event in the day ahead is the Australian budget. The government has promised a transformatory document with investments in infrastructure and harsh measures to cut the deficit. In cases like this the fear is often worse than the reality so the AUD bias may be to the upside.

It will need to be factored against Chinese data on retail sales and industrial production at 0130 GMT. The latter is the more market moving with economists looking for a 8.9% y/y rise. On Friday, China announced some liberalization in capital flows and commodities markets in a move that could also underpin AUD.

Separatist votes in eastern Ukraine had little effect on early FX action with markets largely unchanged from Friday's close in the early hours. Last week the Australian dollar was the top performer while the Swiss franc lagged. The week begins with Japanese trade balance and Australian business confidence. In the Premium Insights,  our AUDUSD long is in 110 pips in the money, nearing its final target while USDJPY short is 70 pips in the money and also nearing the final objective.  GBPUSD,  USDCAD, AUDNZD and gold are also in progress. For the full Premium trades, they can be found the Premium Insights.

Despite the urging of Russian President Putin to postpone votes for separation from Ukraine, several regions held loosely organized referendums. There were wide-ranging allegations of vote rigging and turmoil in Ukraine has continued but the conflict is a progressively lower priority for traders.

Part of the reason is that traders have other events to focus on, like the potential for ECB action in June. The euro finished the week near the lows as buyers abandon the single currency. The weak finish is a bad omen.

On the weekend, the UK press carried a report that the BOE will raise growth forecasts for 2014 by a tenth or more and could signal that rate hikes are coming before the next election. Cable slumped back from 1.70 last week but it's difficult to hold shorts when the headline risk is so often positive.

Early-week data includes the Japanese current accounts at 2350 GMT at Australian NAB business confidence at 0130 GMT. The latter is at the post-election lows and could be a sign that all is not as well as it seems Down Under.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

• EUR +33K vs +26K prior
• JPY -61K vs -70K prior
• GBP +41K vs +44K prior
• AUD +9K vs +11K prior
• CAD -32K vs -30K prior
• CHF +13K vs +14K prior
• NZD +21K vs +20K prior

It has been an absolute brutal stretch for euro traders over the past year. Once again they were buying just as Draghi clobbered them. The late-coming bulls help explain the one-way fall in EUR/USD on Thurs/Fri.