Intraday Market Thoughts Archives

USD/JPY crumbled after the BOJ opted to maintain the status quo, something we warned about yesterday. The yen was easily the best performer while the US and New Zealand dollars lagged. The BOJ opted to maintain the status quo at its monthly meeting. 1 of 3 EURUSD longs hit all targets and so did 1 of 2 GBPUSD longs. Rest of the trades, EURUSD charts and unfilled AUDUSD are in the latest Premium Insights.

The economic data calendar was nearly empty on Tuesday but that didn't stop waves of selling the yen crosses. USD/JPY crumbled as low as 95.60 compared to 99.00 before the BOJ decision.

A Nikkei story a few hours before the BOJ decision leaked the possibility of no loan extension and it was seen as a mild disappointment. The market showed, however, that it was looking for an excuse to scramble back into yen.

The timing of the drops in the yen crosses was suspect as the pair fell 80 pips in two minutes in quiet US afternoon trading. Margin calls, algos, liquidation, Fed taper and all the other usual suspects were floated as reasons for the sudden move. Far-fetched  fundamental ideas like protests in Turkey and new Japanese bank bail-in rules were also used as explanations but those are too marginal to cause that type of selling. We suspect dislocations or hedging in the exotic carry trade market (via structured notes) may have been the culprit.

Whatever the reason, the takeaway is that these are extremely volatile and illiquid markets. At one point EUR/CHF gapped 60 pips lower in seconds and 30-40 pip moves in all the major pairs were commonplace. This type of volatility feeds on itself as it scares away liquidity.

One event to watch in the hours ahead is a speech from New Zealand central bank Governor Wheeler at 2230 GMT . He has been jawboning against NZD for months with limited success but  the thing about talking down a currency is that it works best when you're going with the direction of the market.

Economic data on the calendar comes at 2350 GMT when Japan releases April machine orders and the May Domestic Corporate Services Price Index. Don't expect market moves on either.

Instead, the quietest market might be the place to look. China has been closed all week but there is chatter about a huge selloff in stocks there when they reopen tomorrow. Emerging markets have been hard hit this week and it could hit a crescendo (or stabilize) when China re-opens.

USD/JPY rebounded further after S&P boosted its outlook on US debt. The euro was the top performer while the yen lagged. Markets were slightly quieter in US trading but the upcoming BOJ decision could add a fresh dose of excitement.  In our latest edition of the Premium Insights, a new EURUSD long is added to the 2 existing EURUSD trades,  nearing a key confluence point highlighted in today's weekly and monthly charts. USDJPY is also added ahead of the BoJ announcement due at 03:30 GMT

The calendar was light to start the week but Standard & Poor's had an unexpected surprise as it changed its outlook on the US credit rating to stable from negative. The dollar broadly rallied on the headlines.

EUR/USD initially fell to 1.3185 and cable fell below 1.5500 but the knee jerk reaction was short-lived and both pairs later climbed more than 70 pips to session highs. The takeaway may be that better sentiment could help forge a deal to end the growth-sapping sequester.

The lone item of data on the calendar was Canadian housing starts, which smashed expectations of a 170K reading by climbing to a 200K pace. Canadian real estate is almost certainly a bubble but it isn't popping now and upbeat Canadian growth threatens to fuel further USD/CAD losses.

The yen has been the central character in markets this year and that continues in the hours ahead as the Bank of Japan finishes its two-day meeting. No game-changing announcements are imminent but there is intrigue and it won't take much to spark another big move in the yen.

The focus is on the BOJ program that offers loans for one year at 0.1%. Ahead of the meeting, there was speculation the term could be extended to two years but a story in Nikkei – likely a leak to tone down expectations – said there is disagreement at the BOJ on extending the measure.

If officials opt to maintain the status quo it could weigh on USD/JPY, which is trading close to 99.00.

Chinese weekend data showed a mildly slower pace of industrial production. Last week the yen was the best performer while the Australian dollar continued to struggle. The week starts with final revisions to Japanese Q1 GDP and April trade balance. If EURUSD rallies on Monday then it would complete the 6th straight daily gain, which is the longest winning streak in over 2 years.

The Australian dollar slumped into the weekend, posting the first weekly close below 0.9500 since 2010. It was also the fifth consecutive week of losses for the Aussie.

Australian dollar bulls are struggling to find a reason for optimism. China has fuelled the investment boom but growth continues to level off. May Chinese industrial production was up 9.2% y/y compared to 9.4% expected. It's a slight slowdown from the 9.3% y/y pace through April.

The Chinese consumer remain a bright spot with May retail sales up 12.9% y/y, which was in line with expectations and slightly faster than 12.8% y/y in April.

One positive sign in the global economy might be lowered tensions in the Korean peninsula as the countries agreed to minister level talks beginning Wednesday. If the lower-level talks could pave the way for stable relations it could tone down nuclear rhetoric.

The Japanese calendar features a pair of noteworthy events to begin the week, both at 2350 GMT. No revisions to first quarter GDP are expected  after an earlier report of 3.5% annualized growth. The potential for surprise comes from April current account and trade balance numbers. Trade numbers are expected to show a 729 billion yen deficit. A miss likely wouldn't change the BOJ outlook but it might show the effect of radical QE programs introduced in early April.