Deep Breath After A Deep Fall

Markets had a weekend to digest the big moves of late last week. Last week the yen was the top performer while the Australian dollar was the laggard and yen strength has continued in early trading. Japanese trade balance and the BOJ minutes are the first items on the agenda. 1 of the 2 AUDJPY Premium shorts from Friday hit all targets, while USDJPY was filled and in progress ahead of further Pre-FOMC volatility.1 USDCAD awaits fill. We exited tne remaining GBPUSD long at 1.6620 with 180 pips gain. Full access in the Premium Insights.

The key divergence that emerged at the end of the week was the resilience of USD/JPY despite a continued fall in stocks. The pair stubbornly held 102.00 on Friday but that changed in the thin liquidity to start the week as USD/JPY sank as low as 101.77.

The initial move points to another squeeze on risk trades to start the week but we'll remain skeptical until it takes place in high liquidity trading and for more than an hour.

The bond market was also resilient on Friday with 10-year Treasury yields holding 2.70% and only falling 5 basis points despite the rout in equities. That's a level to watch for confirmation.

Keep a close eye on the Nikkei in early trading. Later, markets may look to Dec Japanese trade data and the BOJ minutes from the Dec 20 meeting for direction. Both will be released at 2350 GMT. Exports are expected up 18% y/y with imports up 26.2% along with a 1.239 trillion yen trade deficit.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -4K vs +9K prior JPY -115K vs -118K prior GBP +9K vs +11K prior AUD -65K vs -52K prior CAD -70K vs -67K prior CHF -2K vs -3K prior NZD +5.5K vs +10K prior

The bout of risk aversion after non-farm payrolls shook a few traders out but once again the bulk of traders showed a firm hand. The awful Australian jobs report came after the data was published but neither AUD nor CAD positions are at dangerous levels.