- USDJPY plunges 50 pips in Asian session
- Market going long USDCNH, USDCNY
- Oil hits $50/b, November highs now in focus
- New strikes on Nigerian facilities support crude
- Bund futures at range highs after strong week
- Click here for a replay of our morning call
By Michael McKenna
Today's Asian session provided a few interesting moves, reports Saxo Bank sales trader Tareck Horchani from Singapore, but none were stranger than the pronounced, 50 pip dip undertaken by USDJPY with no apparent catalyst.
"There was no obvious reason" for the sudden shift to dollar selling versus the yen, says Horchani, with Saxo Bank head of forex strategy John J Hardy adding that the "mysterious" move has left USDJPY traders "in limbo" ahead of month-end and the next big batch of US data in early June.
"The data are supportive of USDJPY [so] this is an odd move;" says Hardy; "It gives me considerable concern that we're not higher in USDJPY"
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Source: Saxo Bank
While traders struggled to find some rationale for the dollar/yen dip, the GBP's continued good fortunes were based on a much clearer combination of factors, with recent polls favouring a "Remain" vote in the upcoming Brexit referendun the main driver.
The question now is where sterling goes from here – will the current rally continue as Brexit fears recede (polls permitting) or is the pound beginning to be overbought?
"The GBP rally is nearing resistance," says Hardy, "and it's important to remember that this is a very structurally compromised currency".
According to Saxo's head of FX strategy, it may be time for pound traders to look into post-Brexit put spreads. If the UK votes to remain, this theory goes, the immediate relief may quickly translate into downward price action as markets begin to realise that next to nothing has structurally changed for both Britain and its currency.
In the commodity currencies, USDCAD headed lower on both the recent, middling-to-supportive Bank of Canada statement as well as crude oil prices, where yesterday's US inventories drop and continued supply disruptions – particularly in Nigeria, where attacks on oil facilities continue – saw Brent crude break the $50/barrel level overnight.
"Now that $50/b is a reality," says Saxo Bank head of commodities strategy Ole Hansen, "November's highs of $50.90/b in Brent and $50.92 in WTI are the key levels to watch."
Elsewhere in the commodities complex, reports Hansen, the soybean surge remains in effect as flooding in Argentina and crop quality concerns weigh ion the supply side of the equation. The continued rally, says Hansen, appears to be boosting agricultural commodities as a whole.
Meanwhile, he adds, gold prices received a boost from the latest round of dollar selling. "The key support level at $1,205/oz has not been challenged," reports Saxo's commodities head, "but we would need to see $1,250 challenged to the upside [in order to confirm a rally]".
The strong performance put in by crude oil of late has boosted energy-sector bonds, but Saxo fixed income trader Michaerl Boye tells us that the robust bond market strength is far from limited to oil-related instruments.
"We have seen a strong week in both corporate and government bonds," says Boye, noting that bund futures are presently hovering at the top of their recent range between 163.00 and 164.00 and the iTraxx crossover index has moved 30 basis points tighter to 307.
The present strength will likely be aided by the start of the latest chapter in the European Central Bank's bond-buying programme next week, adds Boye, but the policy divergence narrative may begin to be felt in the fixed income space where the newly hawkish (or less dovish) Federal Reserve may spook emergibng market bonds as the next US rate hike approaches.
As always, however – and as it stands in the halls of the Fed's Eccles Building – we remain dependent on the data. And today? Watch for the the US weekly employment report at 1230 GMT.
"While these weekly reports are not [ordinarily very weighty]," says John Hardy, "the recent spell of soft prints has shifted the moving average lower" with markets now more likely to move on any notable shift in the US jobs trend's direction.
Any US data surprises appear likely to disrupt the USDJPY trade, which is presently more volatile that fundamentals appear to account for. Photo: iStock