Article / 13 April 2015 at 7:27 GMT

FX Update: JPY matching King Dollar blow for blow

Head of FX Strategy / Saxo Bank
Denmark
  • EURGBP continues its tug-of-war
  • NZDUSD crumbling again
  • Friday CAD jobs boost already fading

By John J Hardy

China’s trade numbers for March shocked expectations with a shortfall of some $37 billion relative to expectations, though it must be noted that the February number was an all-time record high and that every year sees an enormous seasonal dip (usually in February, but clearly pushed forward a month this year). 

Still, the market reacted to this number by sending AUD and NZD lower versus the USD, helping to broaden the USD strength that was somewhat lacking on Friday. 

Federal reserve hawks and doves are sending opposite messages as Minneapolis Fed chief, non-voter and ultra-dove Narayana Kocherlakota argued ahead of the weekend that it would take several years for price and employment levels in the US to meet Fed objectives and that there is therefore no compelling reason to move on rates any time soon. 

FOMC voter Jeffrey Lacker, meanwhile, argued Friday in favour of a June rate hike as he views the recent weakness in US economic numbers as being only temporary.

Federal reserve hawks
Will Fed hawks rule the roost come summer? Photo: iStock

Sources indicate that Eurozone officials were shocked by Greek behaviour during recent negotiations, citing a lack of plan outlines on structural reforms and insistence on maintaining civil servants’ pension levels. In early trading Monday, the market is not pricing in any additional fear (Greek yields are still well off recent highs.)

The calendar highlights this week:

  • Tue: US Retail Sales, Sweden CPI, UK CPI 
  • Wed: Bank of Canada Meeting, ECB Meeting 
  • Thu: Australia’s Employment report 
  • Fri: US CPI and University of Michigan Confidence 

Chart: EURJPY

Watching EURUSD and EURJPY on this week's countdown to the Wednesday European Central Bank meeting. The question here is whether we should be looking for a “double bottom” scenario or if we see continuation of the USD strength right through this event risk, which isn’t particularly highly anticipated. 

The focus is a bit more intense on EURJPY because it has already reached the cycle lows here, while EURUSD still has a ways to go before it is pushing below 1.0500. The next level here could be a psychological one like 125, or the 200-week moving average and 50% retracement closer to 122.

EURJPY
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Source: Saxo Bank
 
The G-10 rundown

USD: Strength broadening with AUD and NZD pushing lower versus the USD, though USDJPY remains a question mark. Tomorrow’s US Retail Sales release is an important one as this particular data series has been weak for three months in a row.

EUR: Looks like EURUSD is trying to make the 1.0600 area a line in the sand, but is having a hard time seeing any catalyst for a significant consolidation unless tomorrow’s US Retail Sales report proves exceptionally weak.

JPY: Matching the greenback’s strength until proven otherwise as EURJPY is pushing on the cycle lows, as discussed above.

GBP: New cycle lows in GBPUSD while EURGBP range levels are still holding – which currency gets the upper hand here, euro or sterling? We’re in the final weeks of the election countdown, so ad hoc risks from election relating polling are now also more pressing in the equation.

CHF: Appreciating passively versus the euro along with JPY – we need a reversal well back above 1.0400 in EURCHF to expect anything different here. Still, USDCHF is interesting above 0.9750 for a try towards parity.

AUD: Looking lower again toward those range lows and we’ll see whether 0.7500 in AUDUSD serves as any kind of psychological support as it nears or whether the pair can continue to power lower. Interesting to note pairs like AUDJPY and AUDCAD looking weaker and making AUD a more attractive short than it otherwise has been lately.

CAD: The strength on the back of Friday’s employment report is fading already and USDCAD may continue to look higher. I would like to see it fully back to 1.2750 and higher to argue for the move to stretch toward the eventual 1.3000 target, while 1.2550 is the near-term failure point for this rally.

NZD: NZDUSD is crumbling again and offers better confirmation for the bears, though better confirmation comes with a close below 0.7400. AUDNZD is an interesting as well to tell us whether NZD shorts are the most preferred on a continuation of the rally through the key 1.0250/1.0300 zone.

SEK: SEK not showing its hand, but impressive that it is trading this weakly against a very weak euro. Watching tomorrow’s CPI and reaction for a sense of where we stand.

NOK: Showing more pep than SEK as EURNOK nears important range level and 200-day moving average, as is NOKSEK – potential capitulation run in NOK appreciation as NOK bears are squeezed if these levels are taken out.
 
Economic Data Highlights

  • Japan Feb. Machine Orders out at -0.4% MoM and +5.9% YoY vs. -2.2%/+4.3% expected, respectively 
  • China Mar. Trade Balance out at +$3.1B vs. +$40.1B expected and vs. +$60.6B in Feb. 

Upcoming Economic Calendar Highlights (all times GMT)
  • Poland Mar. CPI (1000) 
  • New Zealand Q1 NZIER Business Opinion Survey (2200) 
  • UK Mar. BRC Sales Like-for-Like (2301) 
  • Australia Mar. NAB Business Conditions/Confidence (0130) 
— Edited by Michael McKenna

John J Hardy is head of forex strategy at Saxo Bank

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