More Than a Quiet Unwind?

It's usually the quiet days when the best trades over the past month are unwound and that was the case Tuesday as the Australian dollar led and the US dollar lagged. Other themes like weakness in bonds and gold along with stock market strength also posted corrections. Up later, we get second-tier data from Japan and US Congress is expected to announce a budget deal.

Fundamentals continue to play a secondary role in markets and curious moves are the norm. Take gold on Tuesday, it shot more than $10 higher in moments and took out the range over the past two weeks to a high of $1268.

Part of the reason is year-end. Bond are climbing because of year-end rebalancing and fund window dressing. It's hard to believe a Fed taper will have as little impact as the latest data reactions indicate. The JOLTS job openings data hit a five-year high to 3925K, beating the 3895K expected. The US inventory build that prompted a strong Q3 is also continuing in Q4 with stockpiles growing 1.4% in October compared to 0.3% expected.

The dollar gained no support on the data. Instead USD/JPY clipped below 103 and EUR/USD neared 1.38. We're reluctant to draw any conclusions about the meaning of market moves at this time of year but we're on guard against everything. A number of firms have been releasing trade ideas for 2014 and, overwhelmingly, they suggest yen shorts. Combine that with 5-year highs in yen-short bets and you have a potentially explosive mixture.

The calendar highlights in the hours ahead include Japanese machine orders at 2350 GMT (exp +0.7%) and the domestic CPGI which is poised to show some good news for inflation at 2.7% y/y.

The US threatens to steal the spotlight with multiple news agencies reporting that negotiators have reached a US budget deal to ease sequestration cuts and avoid a repeat of the government shutdown ahead of a mid-January deadline.