Intraday Market Thoughts

Japan Pushing the Envelop; Specs Selling AUD

by Ashraf Laidi
May 19, 2013 23:11

We look at recent measures in Japan and the risk of a stronger recovery. The US dollar was the best performer last week while the Australian dollar lagged. The calendar is light to start the week. Both of Friday's 2 new USDCAD longs and the shorts in silver are now in progress as well as is USDJPY.

With Abenomics and aggressive BOJ money printing, Japan is performing two of the riskiest economic experiments in a generation. First quarter GDP was exceedingly strong, machine orders have rebounded, stocks are soaring and with the yen weakening the risks are of a strong recovery.

Separately, Japanese Economy minister Akira Amari told the media “If the yen keeps on weakening a lot more, it will have a negative impact on peoples' lives", responding to questions over how far the yen should weaken. Such remarks may be the latest catalyst to temper yen weakness before the next phase.

The bond market jitters last week could shift to FX on signs that Japan could be leading western growth. More upbeat growth could reverse yen weakness but mixed signs on confidence in the bond market could spark wild volatility.

Abe made a round of stimulus announcements on Friday and one in particular could have long-term implications for business creation. Under the current system, bank often ask entrepreneurs to personally guarantee the debts of the business. Abe said his government is drawing up guidelines to separate founders' personal and business debts. He is also loosening up visa and foreign study regulations, showing that Japan may open its economy.

Chinese released April house price data on the weekend and it showed a 1% rise in April compared to 1.2% a month earlier, showing that government measures introduced in March might be slowing the pace of appreciation. There are certainly reasons to be concerned about a bubble with prices up 4.9% y/y and more than 10% in Beijing.

Bernanke delivered a speech to graduating students on Saturday but it didn't touch on monetary policy or the economic outlook. The Chairman testifies to Congress on Wednesday.

Commitments of Traders

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

EUR -47K vs -34K prior JPY -88K vs -79K prior GBP -65K vs -63K prior AUD -13K vs +6K prior CAD -44K vs -52K prior NZD +23K vs +29K prior CHF -15K vs -4K prior US Dollar Index longs at 35K vs 32K prior

The AUD positions has shifted to net short for the first time since June 2012 after a 6% two-week decline. What's interesting is that NZD speculators continue to hang on, that could lead to some relative kiwi weakness in the days ahead.


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