Data/Event Risks
- USD: Lots of second and third-tier data out today, commencing with initial claims at 13.30. The latter fell to a 5yr low last week, at a time when the S&P 500 reached a 5yr high. Labour market news has mostly been supportive of the dollar in recent months.
- GBP: Eagerly awaited is tomorrow’s initial estimate of Q4 GDP. Some analysts expect a decline of as much as 0.5%, which if confirmed would presumably weigh on the pound. That said, a relatively bearish figure is already priced in, so sterling has the potential to rally should GDP deliver an upside surprise. See how to trade the GDP release with GBP/USD.
- EUR: Plenty of economic releases out of Europe today for traders to get excited about, with manufacturing and services PMIs for France/Germany and the EC. EUR/USD Prints Lower Highs – Downtrend Resistance Weighs
Idea of the Day
For the numerous recently-converted yen bears, there are some warning signs emerging that this is becoming a crowded space. First, as is typical after such a large move, numerous commentators are venturing forth with brazen forecasts which predict that the yen can weaken considerably further in coming months. Second, net short positions amongst traders are still extremely elevated, although there has been some squaring-up in recent weeks. Third, the 3m yen risk reversal peaked at 1.5 last month (it has since fallen sharply to a still relatively high 0.80). Notwithstanding the clear desire of local politicians to see the yen weaken further, being short the Japanese currency is fast becoming a trade only for those prepared to adopt very short time horizons.
Latest FX News
JPY: The remarks of Japanese Deputy PM Nishimura claiming that USD/JPY up at 100 would not be a problem for his country provided fresh impetus for yen selling, as did a decent print on the Chinese flash PMI. USD/JPY is now up at 89.30, having tested 88.0 this time yesterday, while EUR/JPY is back above 119. Right now, trading the yen crosses is very choppy.
EUR: Marked time yesterday after the volatility of the previous day. The 1.34 level remains tough to crack, but signs are it will go at some point soon. Did see some marginal EUR/JPY buying which provided the single currency with a bid tone vis-Ã -vis the dollar for a time.
GBP: Sterling shorts scurried for cover yesterday morning after some healthy macro news and a positive response to David Cameron’s speech on Britain in Europe. The jobs figures were another surprise; also, the latest MPC Minutes showed that a number of members did not see the need to engage in more asset purchases at this point.
AUD: Has drifted lower overnight in response to a slightly hesitant attitude to risk in the aftermath of the sudden plunge in the Apple share price, and following some dovish remarks from an RBA Board member. At one stage the Aussie looked poised to fall through 1.05, but it has steadied. Overall, the downside has looked bullet-proof recently.
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