We’ll do a quick around the grounds this morning of what happened on Friday night and over the weekend but we want to concentrate on USDJPY this morning because there is a chance that the game might have changed a little for the short term after the BoJ decision and press conference on Friday as well as signs the Abe Governments focus might be changing to a bit more nationalism now that the policies are in place they wanted.
The big news Friday however was both the weaker than expected US Q1 GDP and the lack of reaction in markets in the US to the miss. At the close of play the Dow was up 0.08% but the Nasdaq and the S&P 500 both fell 0.33% and 0.2% respectively which given the magnitude of the miss, 2.5% outcome versus 3.0% expected, is really a testament to the impact of the free money culture that the Fed has created.
In Europe markets were also down with the FTSE off 0.26%, the DAX down 0.23% and the CAC fell 0.79%. In Milan and Madrid stocks fell 0.51% and 0.81% respectively.
The USD dollar came under a bit of pressure as a result losing a little ground against the Euro at 1.3037, and the Pound which is at 1.5495 not to mention the Yen which sits at 97.93 and which we will get onto in a minute. The Aussie Dollar was however unable to capitalise on the USD’s weakness at 1.0280 this morning and no doubt likely to suffer under the weight of lowered growth expectation and the revelation that the Australian Government’s budgetary hole continues to grow with a $12 billion shortfall in the Governments Panglossian hopes.
Aarrrggghh we’ll have more to say on this in a separate note late on today.
Also out overnight was the news that the new Italian Government lead by Enrico Letta of the Centre Left party which has cobbled together a coalition with Silvio Berlusconi’s party it what is reminiscent of the Italian Governments of old – what’s the half life we give this one? Not sure, but for the moments markets are not concerned.
Turning to this morning’s key focus there is a growing chance that an interim top in the USDJPY rate is in place but if not there is a clear stop level on shorts on which to trade against in the 100 zone. We’re intrigued by the USDJPY price action and its inability to have broken 100 for so long and the sell off that has occurred on Friday night to push it back below 98 where it sits this morning.
The key for me as you can see in the tweet above from Friday afternoon after the BOJ held its press conference and announced that it was expecting inflation of 1.9% by 2015 is that if this is as close to the 2% target as you can get then having engineered a 25% weakening in the Yen from below 80 to just below 100 then perhaps the overt work of jawboning and driving USDJPY, EURJPY and other Yen crosses is largely complete.
Perhaps certain names in Tokyo or other places knew this which might help explain the persistence of USDJPY’s inability to break this key level of 100 – perhaps not as well, but either way a USDJPY short looks a good risk reward trade based on the techincals.
The first chart above is the 4 hour chart and it is clear that the box USDJPY has been in for a while is still holding but equally with our fast and slow moving averages having crosed and turned bearish Friday the outlook has turned lower.
The daily chat is starting to look like it is topping but like the aborted sell off below 96 recently we’d argue that only a break of the slow moving average which comes in at 97.12 today and coincides with the 38.2% retracement of the recent rally is the key short term technical level and support.
Japan is clearly far from fixed but to the extent that the Abe Government and Kuroda BoJ have made an impact on USDJPY which has weakened 25% against the USD and by implication a little more against the CNY and the Won then you might say job done for a while. Equally as I noted above the inflation expectation is for the rate to be close to target in roughly the time frame set then perhaps the topside pressure on USDJPY has reduced for a while – time will tell.
Euro was a little higher on Friday night and continues to consolidate within the 1.30/32 range. We thought it might have broken down and headed lower by now but it hasn’t and consequently the Box is reinforced for the moment. We are still running a discretionary – not systemised – short position in Euro and will do for some time.
For the Aussie the outlook is starting to turn on both a fundamental and technical outlook – We will address the Aussie in a separate piece later but for now while below 1.0338/41 the bias is back toward the recent lows at 1.0219 and then perhaps lower. Looking at the chart above though some might make the case that if the recent lows hold and the Aussie breaks up through the trendline then it is off to the races again for a run at 1.04 and above. So that 1.0338/41 level is worth watching.
On commodity markets Gold spiked into our sell zone hitting a high of 1482 on Friday night before dropping back to close down 0.53% at $1453 oz. A break of $1450 could open a move lower today. On the Silver market prices were under pressure falling 1.58% to $23.95 after an early rally also but Dr Copper managed to rally more than 2%. Crude was also down a little falling 0.68% to $92.78 Bbl.
Japan is out today for “Showa Day” which an increasingly belligerent Shinzo Abe is calling something national return of sovereignty day. Nothing in Australia but a raft of European consumer confidence and business climate data before personal consumption and spending data in the US along with the release of Dallas Fed manufacturing data and pending home sales.