Knife catchers are out in force this morning bidding up the JPY, after rumors that Kuroda is ready to act as soon as confirmation as new BoJ governor is formalized; JPY initially weakened. Today's UK data could test the sterling bears’ mettle.
Sterling pounding abating?
The sterling pounding continued yesterday, but buyers came in at the new lows, somewhat softening up the strength of the downtrend. Last week’s US futures positioning reports showed that net positioning had fallen to -44k contracts, still well off the extremes of 2010 and 2011 which were as low as -75k. Outright short contracts are closing in on the record, so the market can be said to getting stretched positioning-wise. Keep this in mind with today’s UK production and trade balance data. Otherwise, the UK calendar is fairly quiet, until next week’s inflation data. As the VIX touches 6-year lows, the market could be using sterling as a funding currency for risk, so there may be a pop in sterling to the upside in a risk-off environment, even if the overall trend is down.
Chart: GBP/USD
The momentum is coming out of the cable chart a bit – as the 8-hour chart below shows as MACD is divergent. It would take a decent, short term pop above 1.5000 to raise hopes that we may finally see a chunkier corrective sequence perhaps back to the 1.5250/1.5300 zone. This would most likely be a spot for more strategic sellers to take a stand, as the longer term picture presents a clear further downside.
Kuroda rumours see new JPY low
The JPY put in new lows overnight as the USD/JPY traded above 96.50, as the BoJ released the minutes from its most recent meeting and especially after a Nikkei article discussing the possibility that Kuroda could have a surprise meeting or policy initiative if confirmed. But the currency bounced this morning as bond markets in Europe opened firm. The price action suggests the risk that some JPY selling exhaustion may be setting in here. The best guess is that even if Kuroda is quickly confirmed and launches a special meeting, it could cause a short term further spike lower in the JPY. That action is already over-extended at present, though I'm certainly no advocate of knife-catching...
Hungary’s new constitution
Hungary’s Fidesz party has managed to push through changes to the constitution that are seeing the HUF sharply weaker toda, measures that defy rulings from the Hungarian judiciary that have triggered EU concerns about “the rule of law”. This news is re-aggravating the HUF downside that was evident in late 2011 and early 2012 over the fears that similar measures would eventually be passed. This sets a very interesting precedent in central Europe, with the risk of one-party rule/dictatorship as the worst possible eventuality as the EUR/HUF pairrushes higher.
Looking ahead
Tthe US Small Business Optimism survey due later will spark some interest: it has failed to track many of the other confidence indicators higher – does this suggest less robustness “on the ground” of the economy than some of the other surveys? It’s tough to get a read on the US economy at the moment, with some of the major surveys looking strong, while we’ve got the still unknown effects of the payroll tax cuts and fiscal austerity beginning to bite. Tomorrow’s US retail sales is the week’s key US data point.
For the moment, the focus is on the technical break of 1.3000 in EUR/USD, which helps build the case for the bears, although we need to get out of this persistent range and push below 1.2950 to get some momentum back on the scene, and possibly a quick look down at the 200-day moving average a figure or so lower – a bit of risk off and the EUR/JPY selling is helping this morning – perhaps this is a temporary top in the JPY crosses.
It is revealing that surveys show the Italian Public favors the euro more than the German public does. After all, it is Germany that has so far had its cake and eaten it too within the EU. If they leave and watch that Deutschmark soar, they’ll get nostalgic for the good-old (EU days in a hurry. The EU crisis is still in its early days.
Stay careful out there.
Economic Data Highlights
- Japan February Domestic CGPI rose +0.4% MoM and fell -0.1% YoY vs. +0.3%/-0.1% expected, respectively and vs. -0.3% YoY in January.
- UK February. RICS House Price Balance fell -6% vs. -1% expected and -4% in January.
- New Zealand February REINZ Housing Price Index rose +1.6% MoM
- New Zealand February. REINZ House Sales rose 7.5% YoY vs. +21.1% in January.
- Australia February NAB Business Conditions out at -3 vs. -2 in January.
- Australia February NAB Business Confidence out at +1 vs. +3 in January.
- Japan February Consumer Confidence out at 44.3 vs. 43.0 expected and 43.3 in January.
- France January Current Account fell to -5.0B vs. -3.8B in December.
- Sweden February Headline CPI out at +0.4% MoM and -0.2% YoY as expected and vs. 0.0% in January.
- Sweden February CPIF (core CPI) out at +0.5% MoM and +0.9% YoY vs. +0.5%/+0.9% expected, respectively and vs. +1.0% YoY in January.
- UK January Industrial and Manufacturing Production (0930)
- UK January Visible Trade Balance (0930)
- US February NFIB Small Business Optimism (1130)
- UK February NIESR GDP Estimate (1500)
- US Weekly API Crude Oil and Product Inventories (2030)
- Australia Mar. Westpac Consumer Confidence (2330)
- Australia January Home Loans (0030)