Euro Starts Higher, China CPI Next

Signs of a small round of profit taking in US dollar longs continue following Friday's non-farm payrolls. The dollar is generally weaker in early trading led by a quarter-cent gain in the euro. Weekly CFTC positioning data once again showed only moderate interest in yen shorts.  

The US dollar finished near the lows of the day on Friday. The details of the non-farm payrolls report were solid but low inflation, including low wage inflation in the NFP report, are a growing concern.

On the weekend, the focus was on China's import/export data. Exports were solid, up 11.6% y/y compared to 10.6% expected but imports were a touch soft at 4.6% y/y compared to 5.0% expected. The Australian dollar is slightly higher in early trading but we warn that softening imports show that Chinese companies are seeing softer demand and that could later mean lower production and exports.

Another story to watch is the unsanctioned referendum in Catalonia as the region seeks to separate from Spain. The non-binding vote was called off several times but took place with volunteers Sunday and more than 2 million of the 5.5 million eligible voters cast votes.

The results are due Monday morning in Spain and a vote for independence is likely and could weigh on the euro.

The focus will be on China in the early going with CPI/PPI numbers due at 0130 GMT. The consensus is for a 1.6% y/y rise in the CPI and 2.0% decline in the PPI. Those inflation numbers leave room for economic stimulus; something more likely with trade and GDP falling short of government targets.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -178K vs -166K prior JPY -72K vs -67K prior GBP -8K vs -6K prior AUD -38K vs -34K prior CAD -19K vs -21K prior CHF -20K vs -20K prior NZD -4K vs -4K prior 

It's tough to explain yen shorts remaining near a three-month low despite the dramatic fall in the currency. We can only reason that specs missed out and failed to find a dip to buy. Rest assured they will be there on pullbacks in a factor that should underscore the trend higher in USD/JPY.