The main news yesterday was the inability of the JPY to maintain a rally attempt in the wake of the weak third-quarter Japanese GDP data released early Monday, as USDJPY snapped back above 116.50 and EURJPY is pushing on the resistance at the former multi-year highs above 145.50 (though yesterday’s actual high was above 146.50).
Of course, from the minute-to-minute action, it is quite evident that JPY crosses continue to obsess over the direction of risk appetite — meaning that, as so often in the past, being long on a JPY cross is tough to differentiate from a long stock index position.
Meanwhile, the clock is ticking on Japanese prime minister Shinzo Abe’s announcement to call for both snap elections in December and a delay of the sales tax hike planned for October of next year, with media sources indicating this announcement will come today.
JPY crosses are awaiting input from prime minister Shinzo Abe, who is expected to call for snap December elections and a tax hike delay. Photo: Buddhika Weerasinghe Getty
The actual announcement hitting the wires is the key test for whether the JPY can continue to head lower for now, with risk appetite a critical factor, as noted above.
The secondary development yesterday was the US dollar’s moderate comeback from new local lows in several of the major USD pairs, particularly the steep sell-off from the 1.2580 resistance area in EURUSD and from the 0.8800 area in AUDUSD, though it’s tough to upgrade the greenback’s prospects as long as the forward view on Federal Reserve policy remains so quiescent and complacent.
In that light, tomorrow’s Federal Open Market Committee minutes could jolt the market with fresh impressions of the Fed’s latest thinking. I was surprised how decisively the market reacted to the previous minutes, released on October 8 from the September meeting, which saw the market shifting the anticipated first interest rate hike to far later next year than previously anticipated. This was, of course, a dramatic contrast to the median of the FOMC projections in its September policy statement. After the FOMC minutes late tomorrow, we have US Oct. CPI on Thursday.
Chart: AUDUSD
The USD made a comeback yesterday against several of the major currencies, including versus the AUD, as seen below. But we’ll need to see some kind of shift higher in USD rate expectations to trigger a broader USD rally — in the meantime, it appears the JPY crosses are in the driver’s seat at the moment.
For AUDUSD, let’s see if we can get a move back below the 0.8650 area. One tailwind for the bears were the Reserve Bank of Australia minutes overnight, which saw the RBA generally disapproving of the exchange rate and suggesting that growth will remain below trend through 2015 before picking up. Australian two-year rates ticked a few basis points lower.
Looking ahead
GBP is in focus today on the UK's October CPI release as the market has almost removed all expectations of easing in the 2015 calendar year after last week’s quarterly inflation report. The two-year UK/US rate spread (using two-year swap spread) has plunged to below 30 bps over the last couple of days from the highs above 75 bps in the early summer.
EURGBP is trading near the key 0.8000/50 resistance zone which is now intersecting the 200-day moving average.
Otherwise, the euro wilted again in the wake of Draghi’s testimony (and a few comments from the ECB’s Peter Praet) yesterday, though this market will increasingly want to see concrete evidence of the ECB’s success in growing its balance sheet or the clear intent to move to sovereign bond buying, a transition that could take some time.
Today, we have Germany’s latest November ZEW survey to entertain us — as the expectations component of that survey dropped below zero for the first time since 2012 in October.
Upcoming Economic Calendar Highlights (all times GMT)
- Australia RBA’a Stevens to speak (0825)
- Euro Zone ECB’s Lautenschlaeger to Speak (0830)
- Euro Zone ECB’s Nouy, Jazbec to Speak (0900)
- UK Oct. CPI/RPI/PPI (0930)
- Germany Nov. ZEW Survey (1000)
- US Oct. PPI (1330)
- US Nov. NAHB Housing Market Index (1500)
- Euro Zone ECB’s Knot to Speak (1800)
- US Fed’s Kocherlakota to Speak (1830)
- US Sep. TIC Flows (2100)
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