Small Election Could Have Big JPY Impact

The yen is the early laggard as risk trades continue higher on the non-farm payrolls turnaround. CFTC positioning data showed fresh bets against the euro and a squeeze on yen shorts. USDJPY, equity indices and the 10-year yield have all shown hammer weekly formations lasy week and may be set for a rally in these upcming weeks. Latest Premium Insights include EURUSD held the 1.3650 stop, USDCAD long held the 1.0950 stop, GBPUSD held the 1.6230 stop and 2 gold trades. 

USD/JPY climbed 20 pips at the open and took out Friday's 102.58 high but the topside in the pair could be limited early in the week after the results of the Tokyo governor election. A former PM ran on an anti-nuclear campaign and turned the election into somewhat of a referendum on the planned restart of idled reactors.

Instead, a candidate supported by PM Abe was successful, paving the way for a restart later this year. The move will curb the vast quantities of coal imports from the Japanese a close the trade deficit, helping to boost the yen. The polls largely predicted the result of the election so the initial effect is likely to be minimal.

The Japanese current account data will be in focus early in the week with trade and current account balance numbers due at 2350 GMT. A trend deficit of 1.26T yen is expected and a current account deficit of 0.685T yen.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -13K vs +14K prior JPY -77K vs -86K prior GBP +10K vs +22K prior AUD -56K vs -66K prior CAD -60K vs -63K prior CHF +2K vs -1K prior

For the second week in a row, euro positioning flipped and once again the speculators were caught offside in a demonstration of the frustration of the trendless euro. A more solid trend is USD/JPY strength and with positioning moving toward neutral the stage could be set for renewed gains.