Intraday Market Thoughts Archives

USD/JPY rose for the fifth day on Wednesday, hitting the highest since late January. The US dollar was the top performer on Wednesday and the kiwi lagged. Keep a close eye on the Australian dollar in the hours ahead with trade balance, retail sales and a speech from Stevens on the schedule.

The price action on Wednesday looked a lot like position squaring ahead of the major event risks in the next 40 hours including the ECB, ISM non-manufacturing survey and non-farm payrolls. The tell might be the fall in NZD/USD as it peels back after hitting the highest since 2011 on Tuesday.

The exception was USD/JPY, which remained perky although it was unable to break 104.00. Stocks are supporting the pair as the S&P 500 closed at a fresh record and the Nikkei is slated to rise for the sixth time in the past 7 sessions. A further rise in bond yields will be needed to sustain the rally. 10-year Treasury yields are flirting with the March high of 2.82% and a break would be a bullish signal.

Don't underestimate the importance of the ISM non-manufacturing index on Thursday. It's a better look at the real-time trajectory of the economy with weather improving while hiring is more of a lagging indicator.

The first event to watch on the Asia-Pacific calendar is the Markit Japan PMI at 2315 GMT. There is no consensus and the prior was 49.3. Given that Tankan data had little effect on the market, this is highly likely to be a non-event. A month from now, the market will be looking closely at April data as the effects of the consumption tax hike are weighed.

The main events come at 0030 GMT with Feb trade balance and retail sales from Australia. A surplus of A$800m is expected along with a 0.3% m/m rise in sales. Signs of strength in the economy could easily boost AUD/USD as the market prices in rate hikes sooner.

Finally, at 0150 GMT, RBA Governor Stevens speaks in Brisbane. He's cooled his efforts to jawbone the aussie lower, probably because he can't credibly threaten action.

April is the best historical month for the Dow Jones Industrials Average. The index finished higher in April in of each of the last eight years, averaging a monthly rise of 3.3%. Unlike the S&P500, which is trading at new record levels, the DJIA is 30 points way from its 16,588 record close reached on December 31 of last year. 93% of DJIA members are currently trading above their 200-day moving average. Full charts & analysis

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US vehicle sales data stole the show from the ISM manufacturing index on Tuesday. The euro was the top performer while the yen lagged. Australian building approvals highlight a quiet Asia-Pacific session.

Outstanding US automotive sales numbers in March pointed to a jump in consumer spending after a cold winter. Total domestic sales were at a 16.33m annual pace compared to 15.8m expected. The bullish case for the US economy (and dollar) is that spending was held back by cold weather and will surge in the Spring. It's early but those numbers point a positive picture.

Several carmaker executives said spending was accelerating at the end of the month so it could be just the beginning of the trend. The market will be looking for confirmation from employment numbers in the ADP survey Wednesday and retail sales numbers later in the month but expectations are climbing. The S&P 500 hit a record 1885 on Tuesday and USD/JPY is flirting with the March high of 103.76.

One area of concern in the data is manufacturing after the ISM survey at 53.7 compared to 54.0 expected. The miss was largely foreshadowed by Markit numbers Monday's Chicago PMI and the market took the numbers in stride.

The Canadian dollar was a standout performer once again after PPI and the RBC manufacturing data beat expectations. The level to watch in the pair is 1.1000. It's held in three consecutive sessions and a fall below could put a harder squeeze on longs.

The rest of the commodity bloc was soft on the day, particularly NZD/USD, which slumped to 0.8633 after touching the highest since 2011.

The focus will mostly be on the Australian dollar with a pair of low-tier indicators on the schedule, both at 0130 GMT. February building approvals are expected up 27.9% y/y as the sector continues to boom. The other release is job vacancies. There is no consensus estimate and the gauge fell 1.7% in Jan.

As USDJPY breaks above 103.50s for the 3^rd time this year, will traders ride the bandwagon siding with the expectations of fresh BoJ stimulus offseting any growth challenges from this month's Japanese tax hike, or will a stock market selloff weigh on the pair as it has done in the past? We know that bond yields usually move in tandem with yen pairs. We also know the Fed is expected to taper in April, alongside dovish (accommodative) talk from Fed chairwoman Yellen. So where does all this leave USDJPY?

We hesitate to over analyse quarter-end moves because of inevitable skews from flows. On the day, CHF was the top performer which is odd for a day when risk trades strengthened. The yen was the laggard on the day and the month; the focus will remain on Japan with the quarterly Tankan data due today.

A glance at the quarter shows a massive divergence in the commodity bloc with AUD and NZD leading and CAD lagging badly. That's a rare occurrence but reflects opposing central bank stances.

The most tradable headlines on the day were from Yellen who said the economy needs extraordinary support for some time. The dollar fell 30 pips across the board with the comments sounding more dovish but the underlying story didn't really change.

Perhaps what the market should have focused on is the economy data, especially the fall in the Chicago PMI to 55.9 from 59.8. It was the lowest since August and featured sharp falls in the employment and new orders components. The survey-takers blamed seasonals but that excuse is wearing thin.

In any case, the ISM manufacturing data is due on Tuesday and that will offer a more definitive impression of the sector.

As April begins, keep in mind that it's historically the strongest month for risk trades by a large margin. The pound has risen in 9 consecutive Aprils and the commodity currencies also tend to be very strong. The US dollar often lags.

It will be a critical month for Japan as the economy reacts to the hike in the consumption tax. The main release is the Q1 Tankan. All the numbers matter but ones to focus on are the large manufacturing index (exp 19) and large manufacturing outlook (exp 13). The numbers are due at 2350 GMT.

The other data point to watch is the official China PMI at 0100 GMT. It's expected at 50.1 compared to 50.2 in February and could certainly make waves in AUD trading.  The revisions to the flash estimate (48.1) from HSBC are also due. 

Forget about copper-Aussie corelation. As wheat prices surge to 11 month highs and the Australian dollar hits 4-month highs vs the greenback, It's time to remind of the correlation between Australia's currency and prices of wheat, owing to the nation's role as the world's 7th largest exporter of the crop. Full charts & analysis

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 Two major questions loom in the week ahead: Will the ECB move toward cutting rates? Will the US spring back after a cold Winter? Early market moves pushed up EUR/USD and cable modestly higher. Japanese industrial production data is due at 2350 GMT.

The ECB decision is Thursday and the chance of action this week is low. Bloomberg surveyed 55 economists and only 3 expect any kind of move. A 10-15 cut in the refi rate with no negative deposit rate is the dovish scenario but it's also a move that would signal more to come.

If there is no move on rates, look for hints about what will come next. The ECB has maintained that low inflation is mainly due to structural adjustments in the periphery but that the main scenario is unfolding as expected. Others worry that disinflation could become entrenched in a Japanification of Europe.

On Friday, German HICP inflation was lower than expected at 0.9% versus the 1.0% consensus and that raised the chance of a move but comments from German officials on the weekend downplayed the chance of a move.

Throughout the week, the focus will be on the US economy as the Great Question of Winter 2014 is answered. Was it bad weather or something more?

This week, the first look at top-tier March data is released including the ISM and jobs surveys. Sentiment data has been solid and jobless claims numbers good so expectations are high. If the numbers are only slightly above expectations it might not be enough for markets.

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

 EUR +40 vs +53K prior

 JPY -69K vs -62K prior

 GBP +30K vs +26K prior

 AUD -21K vs -24K prior

 CAD -33K vs -70K prior

 NZD +18K vs +16K prior

 CHF +15K vs +15K prior

 The big move in CAD positioning suggests the slump in USD/CAD last week might have been exaggerated by a squeeze on longs.