Article / 24 July 2017 at 2:49 GMT

Macro Monday: Beware the yen — #SaxoStrats

Global Macro Strategist / Saxo Bank Group - Singapore Hub
A  replay of the call is available here

Summary of last week

  • EUR: Rocketed despite dovish Mario Draghi as the USD weakness theme continues.
  • Bank of Japan: Asked for more time to hit its CPI target, naturally bullish for yen crosses.
  • Reserve Bank of Australia minutes interpreted as hawkish, which is more sentiment driven than factual. AUD closing above 0.78, its multi-year resistance is big deal.
  • Surprise cut on South African Reserve Bank.
  • Commodities: Big reversal on oil while last week targets were hit on both precious metals.
  • VIX: Record new low again at 9.36.

VIX low low low

Source: Bloomberg
Week ahead

  • Key focus:  US Q2 GDP, FED Jul 26, Aus CPI Weds
  • Central banks: Fed 1.25% e/p (July 26) SELIC +9.25% e +10.25% p (July 27) TU 8.0% e/p (June 27) RU 9.0% e/p (July 28)
  • Fed speakers: Minneapolis Fed President Neel Kashkari (July 29)
  • Other: Opec meeting (July 24), Bank of Japan Minutes (July 25) RBA’s Philip Lowe (July 26)
Economic data
  • US: US: Flash PMIs manf. 52.3e 52.0p Serv. 54.3e 54.2p, durable goods, Q2 GDP 2.5%e 1.4%p UoM
  • Eurozone: F-PMI 57.3e 57.4p Serv 55.5e 55.4p 
  • Germany manufacturing 59.1e 59.6p Services 54.4e 54.0p 
  • Japan: F-PMI 52.3e, CPI, RS 
  • UK: Q2 GDP 1.7%e 2.0%p, house data 
  • Australia: CPI 2.2%e 2.1%p PPI
  • New Zealand: Trade data

  • Federal Reserve: Market sentiment would lean towards a more dovish Fed – which is what the market wants. Most importantly the market will be looking for indications of a start to balance sheet reduction, potentially at their September 20 meeting. If there is no guidance towards the BS with this statement, then all eyes on the Fed's Jackson Hole conference.
  • US GDP: Big beats on the US GDP may squeeze the reversal in the USD. 92.20 is the 200W moving average and 91.919 was the low before DXY surged over 13% – definitely key levels to take note. The market is definitely not expecting a replay of the DXY move in 2016.
 Big beats on the US GDP may squeeze the reversal in the USD. Photo: Shutterstock

  • One should not write off the Fed just yet – the trigger for the USD squeeze may come on US PCE on August 1. Could it be at the Fed's Jackson Hole conference on July 24-26? Or CPI picking up before the September 20 Fed’s meeting? Balance sheet reduction could move us to a stronger USD, if yields end up going higher.
  • Near-term path of least resistance should still be lower rates, weaker USD, lower volatility, higher EM.
  • Positioning: Still prefer precious metals, Yen strength. USDJPY closed below both its daily and weekly 100 and 200 moving averages. EURUSD: rose too fast too furious, it’s a long way to the September 7 European Central Bank meeting and we may soon see some downside risk to EUR crosses – however we have to wait for exhaustion and reversal signals.

USDJPY and NIkkei divergence: KVP is squirming in his seat, only a matter of time before he shorts the Nikkei

  • Big picture thought: Quantitative easing was in theory supposed to be inflationary and cause companies invest. It did the opposite. QE is in theory supposed to be deflationary and cause companies not to invest – KVP feels that in practice, it will be the opposite.

Technical Picture: James Kim

  • Dollar index: USD punished yet again on the weekly. 91.88 will be the final support, the 2016 low.
  • EURUSD: Approaching the 1.18 , the 200 day weekly moving average. The 1.1714 high from 2015 will a key level for the market “touch the sky”.
  • USDCAD: 9% off its 2017 peak but still remains oversold and should see it move towards the 2016 low towards to 1.2460.
  • AUDUSD: Confirmed its breakout last week with violent buying. Looking to buy positioning on retracement towards 0.7777 – 0.7727.
  • EURJPY: 200 day moving average hindered EURJPY to move higher last week.
  • US 10-year treasuries: Grinded higher with move towards the Fib6 level towards its Fib6 retracement at 126-10.
  • USDJPY: Make or break week for USDJPY as it broke the weekly 200 days moving average last week – as well as the 100 WMA, & the 100/200 day moving average.
  • EURRUB : High this month coincide with the 100% target of the inverse head and shoulders; USDRUB support comes at 58.80.
  • ASX: Bounced off the 200 day moving average last week. And 5790 should expect resistance and likely to be range bound.
  • Nikkei: Lower highs in the last week and price action and momentum indicator showed divergence – Toppish. Note divergence between Nikkei being elevated and DollarYen retreating lower continues
  • S&P 500: Created historical high again last week but showing resistance at the Fib261.8 extension.
  • Crude: Attempt to settle above $47/barrel was rejected and exhibit weakness in price action. Needs a break above $47.50/b to conclude short term bullishness.
  • XAUUSD: Likely to see further gains with $1245/oz as support.
Macro Monday Portfolios – the Infamous KVP

  • No new positions to both books but looking for potential long exposure in RUB and JPY and short EUR and AUD exposure.
  • The short skew on AUD makes more sense, technically (KVP take) its more overextended, and RBA governor Philip Lowe’s Tuesday speech plus Wednesday CPI would make it tricky for the longs to not bank profits, play a bit of defense (not to mention there is decent correlation between AU and NZ CPI data and Kiwi data missed last week 1.7% actual versus 1.9% estimated)
No COT report...just for a little while

Also folks, note no COT report this and next week, given Ole Hansen's mandatory block leave. Yes, yes I know… KVP should build one for the Macro Monday ecosystem… step at a time…

What I’ve seen from other reports is pretty much continuation of what we already know:

  • Record Euro longs continue to build (highest now since May 2011), Kiwi longs at records not seen since 2005, CAD finally Net Long! (I know downright bamboozled, someone took a massive hit on that last cover & I mean epic).
  • USD shorts are now about -$8yards, which is the highest net shorts since early 2013 (think about that, USD did not even start to really move until mid-2014). Extreme shorts in JPY, RUB and Gold continue -hence my bias for looking for long exposure in JPY and RUB vs. potential short exposure in euro, Aussie dollar, Kiwi dollar…  

 – Edited by Adam Courtenay

Kay Van Petersen is Global Macro Strategist at Saxo Bank. You can follow him on Twitter: @SaxoStrats or @KVP_Macro. Please join us live for next Monday's Macro Call at 0830 [Singapore/Hong Kong], 0930 [Tokyo], 1030 [Sydney].

Market Predator Market Predator
MP is happy you're working. Hope next week also Global Morning Call at 08:40CET will be revived.
Kay Van-Petersen Kay Van-Petersen
Thx MP. Anything is possible! :)


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