Vantage FX | Will USD/JPY break 100, can Aussie fall below 1.02 – Yes! | 22 April 2013

April 22, 2013

The end to the week was dominated by improving stock market sentiment and a re-ignition of USDJPY’s attack on 100 after Japanese Finaince Minister Taro Aso said that the other nations of the G20 accepted that the policies being pursued by the Abe Government and the BoJ were aimed at combating Japanese deflation and trying to arrest that and not about weakening the Yen.

If anyone believes that then I have a bridge to sell them because what the Chinese and Koreans think of the Yen policy is sure to be unprintable. But to the extent that this puts to bed the concerns raised the previous Friday after the US Treasury said it was monitoring Japanese policies with regard the Yen it left traders free to recommence the aggressive Yen selling and reverse the ‘haven” buying of Yen we’d seen earlier in the week when gold went a bit haywire. Aso’s comments were echoed by BoJ Governor Kuroda who said the G20 gave him confidence to continue easing

So we saw USDJPY hit the 99.60/70 region once again Friday. It hasn’t broken the key 100 psychological level yet but as Jesse Livermore wrote almost 100 years ago now if it does take it out it will likely run for a few big figures – the Fibonacci projection would be a move to 102.75 if the box breaks

The Aussie had an interesting night and a very interesting week when you think about it. Any notion that it is a safe haven should have been put to bed by last week’s trade. The Aussie was under pressure from the very same forces that pressured markets globally and you can see has hard a sharp reversal on the weekly charts from the false break the previous week.  Indeed on this weekly chart the Aussie looks biased back toward 1.0110/30.

On the daily charts it is a similarly poor outlook and news today from Deloitte Access economics that the Australian Government is going to announce a multi-billion dollar budget deficit on Budget night in a few short weeks could be a catalyst for a rethink about the “miracle” that is the Australian economy. When pressed on ABC NewsRadio this morning Access head Chris Richardson said that he expected the deficit to come in somewhere around the middle of the the Governments last update at $1.1 billion deficit and some economists expecting a $20 billion – so around $10+ billion which is a big take down on what the Government estimated just a year ago and according to Access is largely due to a faltering corporate sector and company profits.

So all is not rosy for the Australian economy as some would have us believe particularly if you pay a little bit of attention to the Citibank Chinese Economic Surprise Index which stood at -16.5 last week from +74 in late February and it is the first negative number since October 2012. Out later this week is the Q1 CPI which we’d guess is going to be no impediment to an RBA easing.

Which suggests that the Aussie will remain under pressure and head first to 1.0250, then 1.0180 and we’ll see how it looks there. We’ll be selling at some point today.

The Euro also looks weak, completely unable to hang onto any gains over the past week which seems really very strange given everything that went on last week – but lets face it Europe remains the basket case of the Big G economies and indeed contains 3 of the G7 economies all of which are weak and weakening. The daily chart above looks like Euro is trapped in a 1.30/1.32 range with a break either side needed to get things moving – we favour a downside break.

Turning to stocks and it was a better day Friday on both sides of the Atlantic with Europe largely posting gains except for Germany where the DAX fell 0.18%. In the UK the FTSE rose 0.69% while in France the CAC was 1.46% higher. Milanese and Madridian stocks rose 1.81% and 1.32% respectively.

In the US the Dow finished up 0.07% but the S&P and Nasdaq both fared better rising 0.87% and 1.25% respectively and closing on their highs for the day. We have read countless articles about Friday’s trade and it seems to consistently be characterised as a relief rally. But relief from what? That gold stopped falling? We are not sure because just like the Chinese economic surprise index continues to weaken so too does the G10, European and US economic surprise indices. So it is hard to charcaterise the big economies of the world as rosy or improving but perhaps in this perverse world that is the point – weak data equals more accomodative policy and more goosing of stocks. We’ll continue to watch the 1520 level on the S&P and see if/when it breaches how things look.

On Commodity markets gold continued its recovery and was up more that $100 from the lows of last week at one stage to $1424 before pulling back to close the week at $1403 oz. We will have a new Gold outlook out later today where we consider where to next for gold – keep an eye out at www.globalfx.com.au or our twitter feed.

Data

Not much data in Asia or Europe today and tonight we get Existing home sales in the US so all up pretty boring.

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