Intraday Market Thoughts

Buck Breaks Higher after Papademos Comments, onto of BOJ

by Adam Button
May 23, 2012 0:23

A downgrade to Japan and the upcoming BoJ decision left the US dollar as the lone safe haven on Tuesday. The dollar surged on periphery fears while the commodity bloc slumped. Japan releases trade data ahead of the central bank decision. Both shorts in EURUSD Premium trades hit all targets, awaiting USDCAD, GBPUSD, gold, and oil. See more below.

A slow move into US dollars turned into a surge late in the session on comments from former Greek PM Lucas Papademos. He said the chance of a Greek euro exit is real and that preparations are being considered. He also estimated the cost of breakup at 500 billion to 1 trillion euros. He sees only a very limited scope for renegotiation on bailout terms.

Nothing Papademos said was a revelation but the comments came with markets already on the defensive and helped tip sentiment over the edge. The euro tumbled to 1.2658 and AUD/USD fell to a 2012 low of 0.9789.

Other factors that weighed on sentiment were 1) an outright rejection of Eurobonds from Merkel and other European leaders 2) the Richmond Fed fell to +4 versus +11 expected 3) Egan-Jones downgraded Spain two notches 4) indications that tomorrows EU Summit will not make a breakthrough 5) A Chinese sovereign wealth fund official criticizing Europes response to the crisis.

The Bank of Japan decision is likely to rendered around 0400 GMT. As the hours grow longer, the risk of further QE grows. Market expectations are minimal but may have edged up after the downgrade. No change in policy may lead to a 20-30 pip slump in USD/JPY but given the outsized drop after the last BOJ decision, more cant be ruled out.

Before the BoJ decision, at 2350 GMT, Japans April merchandise trade deficit is expected at 470.8 billion yen. Exports are expected up 11.8% y/y and imports +10.1% y/y.

All of Mondays shorts in EURUSD Premium trades hit all targets, awaiting USDCAD, GBPUSD, gold, and oil. See more below. The Insights also chart the weekly and monthly techs on GBPUSD. Direct access for subscribers click here: Nonsubscribers can get a free 1-week trial here:



Latest IMTs