Intraday Market Thoughts Archives

Yen is the strongest currency month-to-date as well as year-to-date. Premium subscribers will see the title of this week's theme trades to be “On yen Consolidation”, with trades on USDJPY and CADJPY issued on Wednesday and Thursday respectively.  Our bias over the last 2 months favoured USDJPY, hence the 260-pips over the last two longs. But have things changed now? Is the change in our bias a reflection of change in trend or is it corrective? Fundamentally, the latest yen flows can be conveniently attributed to the heightened tensions between Russia and the Ukraine as well as the warnings from US State Sec Kerry. On the yields front, bearishness has deepened, with 5 straight daily losses in the US 10-year note, calling into focus the 2.60% support. Could these yen gains accelerate as stocks approach the dangerous May equities seasonality?

An upbeat report on US durable goods orders offers fresh ammunition for the US dollar bulls. It was a choppy day over all with JPY leading and AUD lagging. Japanese CPI is the highlight in the hours ahead. In today's new set of Premium Insights, a new CADJPY trade was issued following yesterday's USDJPY trade. These are in in addition to EURUSD, GBPUSD, USDCAD, USDCHF, AUDNZD and the gold long which are all in progress.

US durable goods orders rose 2.6% compared with 2.0% expected in a sign of improving demand. It's not the kind of report that points to +3% growth but it's a start. Core orders rose 2.2% compared to 1.5% and the prior number was revised slightly higher.

The US dollar rose to the highs of the day after the report. USD/JPY climbed to 102.64 and EUR/USD fell to 1.3792.The moves were short-lived, in part because initial jobless claims missed the 315K consensus at 329K. Easter was most likely the reason behind the miss. Risk trades stumbled on news and rumors out of Ukraine as troops attacked separatists and Russia vowed a reaction.

The major report due in the coming hours comes from Japan with CPI on the docket at 2330 GMT. March national inflation is expected up 1.6% but only 0.7% ex-food and energy. More real-time April data for Tokyo is expected to show CPI up 3.0% y/y.Traders raised eyebrows this week after reports that the BOJ could hike its inflation forecasts next week. A high reading combined with that chatter could undercut yen crosses. The forecasts are due April 30.

Uneasiness about US and Canadian housing could be going mainstream on fresh signs of weakness. On the day, the Swiss franc was the top performer while the Australian dollar lagged after the weak CPI print. The RBNZ hiked rates as widely expected and maintained a hawkish tone despite last week's soft inflation numbers. 

The big surprise on the day was the miss on US new home sales at 384K compared to 450K expected. Worries about the housing market are beginning to percolate after a series of misses and no signs of a spring thaw. We'll be keeping a close eye on how the story develops.

The market briefly reacted to the report but the 15 pip moves were later erased in a tide of US dollar strength. The Markit manufacturing PMI for April was also slightly weak but that hardly dented dollar sentiment.

The Canadian dollar briefly weakened after the retail sales report. Feb sales rose 0.5% as expected but the prior was revised down. Digging into the figures also raises some questions about housing. Sales in the building materials section were down for the fifth time in six months and furniture sales were down 0.9% y/y. Those are both proxies for home sales and raise fresh questions.

The main event came later in the day when the RBNZ announced a second rate hike this year to 3.00%. The move was entirely expected but a 20% fall in dairy prices and a weak CPI report last week led many to believe the RBNZ would hint at a pause for June.

Instead, the statement focused on upside risks to inflation and NZD/USD climbed to 0.8620 from 0.8585. Wheeler said future hikes still depend on data and made another attempt to jawbone the kiwi, saying the exchange rate is not sustainable.

The remainder of the Asia-Pacific session is light on data. At 2350 GMT, the Japanese corporate service price index is expected to rise 0.7%. The main event will be a day later with CPI data due. 

Sales of new homes in the US plunged 14.5% in March to 384,000 annualized units, the lowest level in eight months. The 14.5% decline was the 3rd biggest monthly drop in 20 years, with the larger declines seen in July 2013 and May 2010 at -17.1% and -33.5% respectively. Full charts & analysis here

Solid US data made for a choppy market as traders returned from a long weekend. The Aussie dollar was tops while the Canadian dollar lagged. Australian CPI and the Chinese manufacturing PMI are major events in the hours ahead.  

A measure of G7 FX volatility from JPMorgan fell to the lowest since 2007, in a concrete measure of what many traders are lamenting at the moment. But nothing points to impending volatility like a quiet market. Once complacency give way momentum traders erupt. EUR/USD is particularly quiet with only a 1.25% range in the past two weeks. A hint at change in the BOJ or ECB could get the pair moving.

The market is also looking for a better sense of the strength of the US economy. The April Richmond Fed was at +7 compared to +2 expected. Existing home sales also edged estimates at 4.59m vs 4.56m expected but it was the lowest reading since July 2012.

A WSJ story didn't get the market's attention but it could prove important. Citing sources, it said the BOJ could upgrade its inflation forecast – something that would severely diminish the chance of further easing.

In any case, market are likely headed into a higher gear in the hours ahead with Australian Q1 CPI due at 0130 GMT. The consensus is for a rise to 3.2% on headline inflation and 2.9% on the trimmed mean. A higher or lower reading is sure to jolt AUD.

But the initial move might be restrained by the China PMI from HSBC due 15 minutes later. The preliminary reading is expected to tick higher to 48.3 from 48.0 but remain solidly in contractionary, sub-50 territory.

If both releases point in the same direction, a big move in Australian dollar could be coming. 

The Japanese government is instigating changes at its massive public pension in a move that could take pressure of the BOJ. In light trading Monday, the Canadian dollar was the top performer while the kiwi lagged. The Japanese and Australian leading indexes are the lone items on the upcoming calendar.

Japan may look to spur growth by re-allocating its $1.2 trillion pension fund rather than BOJ stimulus – at least for now. On Friday, the government said it planned changes and today it delivered by appointing 7 new members to the 11-person pension investment team.

Several of the appointees have argued for steering investments into more dangerous assets from the traditionally domestic-bond-heavy portfolio. Changes won't be dramatic but they may push out the timeline for BOJ easing, especially as policymakers take their time evaluating the consumption tax.

Elsewhere,  the New Zealand dollar has been under pressure for the past 10 days. A large part of the reason is falling milk prices  and that's a trend that threatens to continue. In the near-term, however, the focus will shift to the RBNZ decision on Wednesday. All 15 economists surveyed by Bloomberg expect Wheeler to hike so hawkish/dovish comments will be key. Look for moves on pre-decision positioning in the 24 hours ahead.

Commitments of Traders

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

• EUR +28 vs +23K prior
• JPY -67K vs -87K prior
• GBP +51K vs +46K prior
• AUD +8K vs +3K prior
• CAD -35K vs -34K prior
• CHF +14K vs +11K prior
• NZD +20K vs +20K prior

The notable move is in the yen where long-term bears are beginning to clear out. The crux of their case was that the BOJ would ease shortly after the consumption tax hike but that's growing less likely. Ex-gov Suto was on the wires Monday say the BOJ is likely to wait until hitting its targets is impossible before taking action.