The USD opened broadly stronger today as Donald Trumps weekend with Shinzo Abe went tremendously well.
Japanese Prime Minister Shinzo Abe must have been nervous meeting President Trump over the weekend. As it was, it all went swimmingly well, wonderful in fact. An initial 40-minute meeting followed by a working lunch then it was off to Florida on Air Force One for some golf. (27 holes over five hours I believe) Mr Abe went laden with investment goodies to sweeten the deal, but in the end, it didn’t matter. No mention was made of currency manipulation or predatory trade practices, in fact, Mr Trump affirmed that the U.S. and Japan are the best of friends and that those disputed rocks with China are covered by the American security treaty.
In our short term social media driven world, no news is good news, and the good news is also good news and early Asia has obliged. USD/JPY rose nearly 100 points from its New York close at 113.20 to touch 114.15 before falling back to 114.00. US 10 years also ticked up a few basis points to lend support.
After tweets about updated tax policies and a successful weekend with Mr Abe, the Trump reflation, stronger USD trade seems to be back on, albeit without the unrestrained wild abandon of late last year.
Looking around the markets today,
USD/JPY
As stated above a one-way ride from the get go although the price action was more a steady climb then an uncivilised land grab. USD/JPY is flirting with each side of 114.00.
USD/JPY has been further supported by Japanese GDP figures this morning, showing Japan growing at a stately 1% annualised.
I am not sure if USD/JPY is out of the woods though in the medium term. It is still firmly marooned inside the daily Ichi-moko cloud.
Like most yen crosses, AUD/JPY has been dragged up by the USD/JPY rally. AUD/JPY though is also buoyed by a vibrant AUD/USD rate as well. (more on this below)
AUD/JPY is trading at 87.30 just below one-year highs at 87.55.
Drifted a bit lower over the course of the session. It is not the main game in town, though. We look for further visibility into the next Greek bailout package, which seems to be coming to a head. Tomorrow we get German and Eurozone GDP numbers which will be closely watched before a G-20 Finance Ministers meeting on Friday.
For now, euro is stuck between 1.0600 and 1.0650. We continue to believe things will get much more emotional on the political front this year for Europe.
AUD/USD
Well supported on dips today. AUD/JPY buying, higher energy and surging iron and copper prices are all combining to have AUD/USD simmering just below key resistance at 7700.
AUD/USD continues to make a series of higher lows implying a breakout may be imminent. On the data front, Thursday’s employment numbers could be the key. For now, AUD remains a resource play.
Failed at 1245 which is now a dou8ble top and possibly a medium term high. Gold’s move up has been driven in no small part by safe-haven flows as the Trump premium faded and political worries increased, both in Europe and the U.S. These have abated (for now), in America which perhaps shows that despite the noise, it is the only game in town. Problems in Europe are much more likely to be reflected in the bond spread basis between its member’s.
Some more trouble could be looming this week in the shape of Janet Yellen’s semi-annual testimonies to the House and Senate on Wednesday and Thursday. Some hawkish comments could put the rate hike expectations on the front-burner again, further reducing gold’s appeal.
As stated, 1245 is important resistance now with support at 1220, the 100-day moving average.
Copper
Continues to defy the sceptics (myself included) and march higher. Increasing demand from China and, most importantly, supply disruptions from two of the three largest copper mines in the world (in Chile and Indonesia), saw copper break 2.7350 and make new yearly highs on Friday. As BHP announced a Force Majeure at Escondida over the weekend, copper has exploded higher again trading to 2.8150 this morning.
Copper’s move higher is quite breath-taking but could continue until supply disruptions are addressed.
Summary
The Trump tweets on corporate tax and an epic 27 holes of gold seem to have calmed the market’s minds vis-a-vis political uncertainty and economic policy. The Trump relation trade has been put cautiously back on the table with buying of USD today. Social media aside, the highlight this week should be Janet Yellen’s Humphry-Hawkins testimony on the hill. A hawkish of dovish stance having the power to boost or deflate the nascent USD strength.