Breaking news: SNB out with aggressive measures to fight CHF strengthening. EURUSD can't decide on a direction, continuing its choppy, halting rally.
The JPY stormed higher overnight, some say due to repatriation by Japanese investors, other say due to renewed risk aversion or the surprising upward adjustment to the awful Q4 growth numbers out of Japan. Those may have been valid inputs, but also key in seeing the yen stronger overnight was a curious, late session rally in US treasuries and a very chunky sell-off in crude prices. The interest rate moves seem especially important for JPY lately. The move took EURJPY all the way to the brink of very important range support at 122.00 and daily Imoku support is a bit lower at 121.53. Those levels need to be taken out to reinforce this move and send JPY crosses back to the lower part of the longer term range. Until then, we remain in the rather tight range of the last two weeks (and while we are writing this, EURJPY has halved the losses from the Asian and early European sessions in this fickle market). In USDJPY, we've not yet even retraced to the 0.382 Fibo of the move up from the 87.14 low to the recent 99.70 top (coming in just below 95.00). See the Chart below for more on USDJPY.
The EURJPY action prevented EURUSD once again from making a break to the upside, even though we have now finally seen the latter pair close above the 21-day moving average. The inability to hold the new highs keeps the technical picture muddled: the last three breaks to new three-day highs have all failed to maintain upside momentum, but no downside momentum develops on the disappointment. This suggests a lot of two-way traffic in the market and reinforces a very cautious view on where things are headed in the short term. With the JPY suddenly making its presence felt, any further sharp drop in EURJPY could continue to cap the action in EURUSD.
The moves in the currency market continue to show a lack of conviction in the short term. Many suggest that the upcoming G20 meeting is vital for establishing a new trajectory for a more coordinate global response from policymakers to the systemic risks still hanging over the world's economy. The US Fed's Geithner is out asking that the world boost the IMF's "firepower", as the FT puts it, by 300% (to $750 billion from approximately $250 billion at present )and there is increasing noise that the G20 meeting will contain the seeds of new policy response. The IMF is desperate for funds, and has periodically been liquidating its gold reserves to raise cash for bailout efforts. The latest gold sell-off is at least partially attributed to IMF gold selling, though the comeback in the some of the riskier currencies simultaneously suggest that gold has become a very sensitive risk barometer as well.
One might look to establish options position with expiry beyond this date to express a view on the G20 outcome as implied volatilities continue to contract. In the case of EURUSD, 1-month implieds are at the lowest since last September. JPY vols are a bit higher due to the market's recognition of the risks involved with the Japanese financial year end at the end of this month and the knowledge that March and April are volatile months seasonally for that very reason.
The Australian employment report was a mixed bag, though the clear focus was on the negative side of the data as markets went into risk aversion mode in Asia. This is the most that the unemployment rate has jumped in a single month since 2001 and 5.2% is the highest unemployment rate down under since early 2005. The action in AUD was heavily affected overnight by the JPY rally, but also the AUDNZD cross, with the RBNZ's mere 50-bp slice to the overnight rate squeezing NZD shorts on the suddenly stale AUDNZD uptrend (market expectations were migrating in the direction of a smaller cut, but it was not fully priced in.) There seems to be plenty more room for the pair to fall - perhaps testing toward 1.2300 before finding support.
The US Retail Sales number for February was out far stronger than expected and comes as a large surprise considering the evident malaise in the US economy. The Jan. numbers were also revised up heavily. Is some of the strength due to one off effect of widespread store liquidations recently and consumers unable to pass up on incredible deals or is there real reason for optimism? It's hard to see the US consumer going into a sustainable shopping spree, so we'll look for credible explanations for this data in the days ahead.
The SNB cut rates to 0.25% from 0.50% as expected. There was a brief flap yesterday on an apparently accidental and premature announcement of the expected cut. In any case, CHF is very definitely on the defensive here after failing to hold the new multi-month highs vs. the Euro. Breaking news: just as we are going to press: the SNB is out announcing very aggressive measure to fight CHF appreciation, announcing intervention and strong QE measures. CHF crosses are exploding higher.... this is also hitting JPY crosses as the market probably raises the odds of coming intervention by the BoJ. Watch out for volatility...the SNB really means business it appears.
Chart: USDJPY
USDJPY has corrected sharply lower, but the chart shows how far we have come since the 87.14 low, suggesting that there is still room for a bit of further weakness without threatening the overall outlook for the bulls. The mighty 100.00 level is an all-important hurdle to the upside (coincidentally, it is also the 200-day moving average at present). To the downside, the first important support is the 21-day moving average barely touched overnight, and then the 94.50 area old high.
Posts
No comments:
Post a Comment