Article / 25 April 2016 at 8:21 GMT

From the Floor: USDJPY fails to dance to BoJ tune

Former managing editor, / Saxo Bank
  • Yen strength regathering despite Bank of Japan negative-rate move talk
  • BoJ might be recognising monetary policy alone is "ineffective" — Hardy
  • GBPJPY upside could signify that recent yen strength may be petering out
  • EURUSD could be ready for downside move back into the range
  • Oil consolidates above $44/barrel despite production rising
  • Opec enjoying "Goldilocks" moment as it "talks up market" — Hansen
  • Wheat sector ravaged as "incredible volatility" rules the market — Hansen
  • Strong sell signals on S&P500 in week ahead — Garnry
  • European Central Bank opens door to insurance companies and long-term bonds
  • Market currently "very supportive for bonds in high-yield segment" — Boye
By Martin O'Rourke

Walk the walk

The Bank of Japan has certainly talked the talk this last week to try and put a cap on the runaway-yen strength that had plunged USDJPY to 108.00 but with that upside move running out of steam at the 111.80 area, the regathering of yen strength suggests that the BoJ may actually have to take decisive action at this Thursday's meeting.

If the BoJ does indeed decide to walk this walk this week, then it may also look to government help to give it the ballast to ensure any negative rate move it makes has an evens chance of coming to fruition.

"This could be the long-awaited transition we've been waiting for, from the central bank's ineffectiveness and futility, towards combining forces with the fiscal side of things to get things moving forward rather than relying merely on monetary reform", says John J Hardy, head of forex strategy at Saxo Bank.

"The BoJ wants the government to do more but maybe it is a little bit early for this transition although it is definitely a theme", he says. "Yen positioning is at record longs".

Hardy nevertheless can see an end to the stunning yen strength on the other side of the BoJ meeting and sees the GBPJPY pairing as instructive.

"There's been lots of sterling strength recently with the Brexit odds supposedly receding combining to see quite a squeeze in GBPJPY", says Saxo's forex chief. "We've hit some interesting levels in Ichimoku charts at well above 160.00. It's putting a lot of pressure on the longer-term bearish outlook for this chart and you can say the same for USDJPY".

"It's interesting to see after this week if we are seeing a turnaround in the yen's fortunes back to the downside and with positioning offering further fuel for that potential outcome".

GBPJPY squeezes ahead of the BoJ meeting

Source: SaxoTraderGO

Hardy also reckons EURUSD's recent bull run could be set to return back towards the 200-day moving average and into range although he says fixing stops is tricky ahead of this week's Federal Open Market Committee meeting. He picks out the 113.25/50 area as likely stops and feels that any skew emerging from the FOMC is likely to be to the hawkish side,.

"The FOMC will play it neutral but the mere fact that Janet Yellen won't be out is a tick in the box for the hawks", he says.

Porridge...and honey

That may be exactly how Opec feels this morning, says Saxo Bank's commodities chief Ole Hansen, as it enjoys what he terms a "Goldilocks" moment.

"Opec is doing what Opec does well", says Hansen. "It has talked up the market while it is increasing its own production. It's a Goldilocks scenario as the market has bought it at face value".

Investment bank Morgan Stanley this weekend estimated Opec's oil production will rise 1 million barrels/day in the second quarter of 2016. Hansen thinks that could actually be right with Saudi Arabia pumping more oil into the system, Iran continuing to ramp up towards full capacity and outages in the likes of Libya coming to an end.

"All of that is offsetting the losses in US production", he says. "Oil did actually weaken overnight but there is still momentum to the upside with lots of investors piling into the long side".

Brent crude was at $44.96/b at 0655 GMT. WTI crude was at $43.51/b.

We might also get some more clues today as to whether the cartel's controversial "supply-and-rule" strategy set in motion in November 2014 is also working with both Halliburton and shale producer Pioneer Resources reporting on their respective Q1s.

"Pioneer will give us a glimpse into what is happening in the shale market", says head of equities strategy Peter Garnry. "Halliburton may show we are facing a big crash crisis in the oil industry".

Opec's strategy has in part targeted the game-changing shale sector in the US as part of its market-grab strategy.

Equities shift

Garnry meanwhile has his eye on the S&P500 which he says is giving off a strong sell signal this week with 130 companies having reported their Q1s.

"We had the big Nasdaq plunge Friday and our Quant model on S&P 500 shows a close association with negative forward one-week returns and the rejections in the last week are pretty sizeable", says Garnry. "It's not something we have seen for some weeks".

Netflix has been the biggest loser so far in the Q1 earnings season with energy and materials surprising to the upside for the second straight quarter.

Strong S&P500 sell signal

Source: Saxo Bank

Open door

It may not have been immediately apparent but the European Central Bank tweaked its bond purchase programme last week to give it more "aggressive scope", says Michael Boye from the fixed income desk, increasing the potential duration of what it buys to 30 years and also taking insurance companies within its umbrella.

"We could see some very-long-term duration bonds", says Boye. "This is a very supportive environment for European bonds especially in the high-yield segment".

Swiss-Glencore has seen a rally in its bonds from "60 at its lowest point" to the 90s, says Boye.

Ten-year German bunds were at 162.50 this morning.

And finally...

Do be careful if agriculture is your manna from heaven. The market is "incredibly volatile", warns Hansen citing respective 9% and 8% slides in wheat and soya Friday.

This is a very nasty correction", he adds.

It looks nice but when it turns, it really turns. Photo: iStock

Martin O'Rourke is managing editor at

Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.


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