Vantage FX | BoJ day, Yen still biased lower? AUD finds support under 94 | 11 June 2013

June 11, 2013

Recap

Stocks had a messy night as the competing forces of rising US bond yields, a Greek miss and weaker than expected Chinese data over the weekend competed with the S&P decision to take the US Governments Sovereign debt rating off negative watch and place it back to stable.

On FX markets regardless of the better Japanese data yesterday the Yen sold off again as we await the BoJ and the Aussie rallied off a low yesterday while I was at the beach of 0.9390

US Stocks watching the Fed

Looking back to Friday night the  non-farm payrolls were slightly better than expected at +175,000 but with the unemployment rate rising to 7.6% so we ended up with a Goldilocks number and a stock rally. But I I noted in our Free Weekly Newsletter on Saturday the Stock markets ability to hold up is directly related to and conditional on the Fed Balance sheet continuing to grow – so the Fed’s actions and tapering are of vital import to the stock market outlook.

So it’s no surprise that after Jon Hilsenrath has hit stocks with two subtly aggressive notes over the weekend about the chances of Tapering that US stocks ignored the big 4.94% bounce in the Nikkei yesterday in Asia closing either side of flat. The Dow was down 0.06%, the S&P 500 down 0.02% and the Nasdaq up 0.14%.

The key for me is the Hilsenrath articles and while I’m not sure many people would pick this nuance up or even interpret it the way I do but he wrote a couple of interesting articles after non-farm payrolls saying the Fed will both signal the “Taper” but then also noted in a separate note that the Fed hated Taper because it’s not aggressive enough – Ouch.

In the Wall Street Journal after the jobs data last night he said,

A good-but-not-great jobs report Friday ensured officials wouldn’t want to act right away and would instead want to see more data before taking a delicate step toward winding down the program. But they could point at their next meeting to improvement they’re seeing in the economy, a prerequisite to reducing the so-called quantitative-easing program.

And then followed up with,

The hangup for Fed officials is the word “tapering” suggests a slow, steady and predictable reduction from the current level of $85 billion a month at a succession of Fed meetings, say to $65 billion per month, then to $45 billion and so on. And that’s not necessarily what Fed officials envision.

Ouch – watch out we may be in for a bit of a shock as soon as the next weeks FOMC meeting.

Certainly the message might have got through to US bond traders as both the 30 year and 10 year were higher with the former at its highest since April 2012 and the 10 year closing at 2.21%.

This and the Fed is becoming a threat to the Stock market rally and a very real threat.

In Europe Germany continues to be a law unto itself with the DAX rising 0.65% but the rest of the market was under pressure. The FTSE was down 0.19%, the CAC down 0.22%, Milan fell 0.81% and in Madrid Spanish stocks fell 0.48%. BUt the real action was in Greece with the Athenian stock market fell 5.8% after the news that one of the cornerstone revenue raises for the Greek Rescue package, the sale of DEPA the Greek natural gas firm – failed to attract a bid. This makes it harder for Greece to hit its targets agreed with the Troika but it is worth noting that globally almost everyone except the Germans are acting more conciliatory for countries in strife at the moment.

US dollar stronger against the Yen as market awaits BoJ, Aussie struggles

Nothing matters in Asia today except the BoJ decision this afternoon but I would struggle to see how they might be more accommodative given they seem to be gaining traction as we saw in yesterday’s GDP data with a 1% growth rate QoQ and 4.1% annualized both better than expected. But USDJPY rose and I saw some reports that it was because of these data which makes no sense, none at all. What might make sense though is that the GDP deflator which fell 1.1% much worse than the -0.8% expected.

So Japan and the BoJ still has a deflation problem not the 2% inflation they are aiming at – so I guess the BoJ might pull a rabbit out of the hat today.

 

Looking at the chart above you can see the important juncture that the USDJPY is at presently. Having broken the 99.90 level and the 6 month+ uptrend USDJPY fell out of bed with a huge move last week into the 94’s before rallying hard for a retest yesterday of the uptrend line. It would be my proposition that while below the 99.90/100 level USDJPY has more downside ahead of it.

The Euro had a big week last week too but even with a strong  rally yesterday it has to break the 1.3300/20 region to kick on. Sterling looks exactly like Euro over the past few days and needs to take out 1.5680/1.57 which is last week’s high and the 200 week moving average.

The Australian dollar is struggling hard and I’m not sure whether the signals suggest that I should be very bullish or very bearish. Yesterday it got knocked under 94 cents on the back of the weaker than expected Chinese trade data that looked to me like authorities had cracked down on the “invoicing” racket with Hong Kong which is really just a way to get money off the mainland. But the Aussie did find support and rallied with the EUR and GBP overnight to a high of 0.9480 off a 0.9390 low.

The bullish signal is the fact that the CFTC COT report released Saturday morning showed a net short position in the Aussie dollar of m0re than 58,000 which looks like an all-time net high for shorts. The bearish signal is that the Aussie continues to make 52 week lows as it did again yesterday and with Friday nights close.

My sense is that I need to see 0.9377 trade as a clear signal that the support zone has broken otherwise I am going to treat it as intact and indeed I bought yesterday in the mid teens after the low and sold last night at 0.9477 last night just below the high of 0.9480. BoJ today is going to be important as is the home loan data and NAB Business Survey – the most important economic stat in Australia each month.

Commodities

It’s all a bit boring on Commodity markets, or at least the ones we watch, at the moment. Nymex crude was down 0.31% to $98.73, Gold rose 0.23% to $1386 and Silver was 0.85% higher at $21.78. Dr Copper fell 0.83% and Corn, Wheat and Soybeans were under intense pressure falling 2.14%, 1.04% and 0.93% respectively.

Data

Big day today with the BoJ interest rate decision and the Australian NAB business survey and home loan data.

In Europe tonight we have industrial production and the German Constitutional court ruling on the OTM bond buying program.

The US is quiet.

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