The Japanese yen pulled sharply stronger overnight after Bank of Japan governor Haruhiko Kuroda joined the Japanese government in talking the yen down by declaring that it would be hard to see the real effective rate for the Japanese yen to decline any further as the JPY is very weak.
This drove USDJPY down over 150 pips overnight. These kinds of comments are all well and good for local moves in the currency, particularly after a steep sell-off in the currency, but can we expect the JPY to launch a major rally without the BoJ actually amending its radical policymaking rather than merely talking up the yen?
If the US Fed proves sufficiently hawkish next week and the next round of US data comes in stronger, the BoJ will have to do more than state its opinion on the level of the currency. For now, the focus is on the 122.00/121.50 zone in USDJPY, as this was the key pivot zone on the way up.
The Reserve Bank of Australia’s Glenn Stevens was out with a rather dovish set of comments on the future trajectory of RBA policy, which saw AUD sharply lower at one point, though AUDUSD quickly reversed course back higher on the Kuroda comments and due to the action in USDJPY. Stevens said that “We remain open to the possibility of further policy easing, if that is, on balance, beneficial for sustainable growth.” To this he added a number of comments on the disappointing growth in Australia over the last two years and fears that non-mining investment would weaken in the year ahead.
Today is another day thin on US data as the dollar remains under pressure almost across the board now, though we have a few distractions elsewhere, with UK Manufacturing Production and the Norwegian CPI figures this morning which could trigger a large reaction on large downside surprises, given the potential for a dovish downshift from the Norges Bank, though oil prices are so strong at the moment that it may be foolhardy to look for too much from this figure today. Then tonight we have a Reserve Bank of New Zealand meeting, which is almost guaranteed to garner a large reaction either way as the market is divided on the odds for a rate cut.
Chart: USDJPY
The USDJPY longs were ambushed overnight by Kuroda comments. The stakes are high as the pair nears the 122.00/121.50 zone, as this was the major pivot/breakout zone on the way up after months of range trading.
The G-10 rundown
USD: USD going nowhere as the market doesn’t seem to want to believe that any data from the US is sufficiently strong to trigger any notable reaction from the Fed next week, particularly, perhaps, given the weakness in asset markets.
EUR: Another spike to the upside in European bond yields is receiving attention and may have the potential to drive the EURUSD all the way to the top of the range and maybe even above 1.1500, especially if today’s talks(should they actually take place) between Tsipras and Hollande/Merkel yield anything of note. Still, the pair is shaping up for an historical sell opportunity from somewhere up here (here at 1.1300+ or do we risk 1.1700+…) for a run down to parity and possibly beyond.
JPY: Tough to decide how much more the market can squeeze out of these Kuroda comments, but the key technical zone is the 122.00/121.50 area – if the pair simply continues and closes lower through this area, it will require reassessment of the uptrend.
GBP: If interest rate spreads mean anything, then GBPUSD has no business up here at the top of the range, though this may extend to the 1.5500 200-day moving average if the USD remains weak and if today’s UK Manufacturing Production is stronger than expected, though risk is skewed lower unless we get a weak US Retail Sales report tomorrow.
CHF: Market refraining from reacting to every Greek headline because the situation is a three-ring circus of contradictory statements and confusion. Just now we are seeing speculation on whether the talks between Tsipras and Merkel/Hollande will even take place. Still, once something more definitive does emerge either way, CHF will quickly come to life.
AUD: RBA comments not weighing much on AUD, though they might if the USD is able to push back after the overnight ambush from the Kuroda comments.
CAD: strong oil prices keeping the pressure on the downside on USDCAD, where the next compelling level to the downside may not come in until the 61.8% retracement at 1.2165 if the USD can’t turn things around here.
NZD: Big two-way risk over RBNZ meeting tonight – but what do we do with a “no cut but very dovish bias” or a “cut but neutral forward guidance” kind of scenario? In other words, beware the kneejerk reaction on the cut/no-cut headline. Generally preferring NZD downside in the medium term.
SEK: EURSEK midrange ahead of today’s production data out of Sweden and the more important Swedish CPI tomorrow – downside surprise on the latter could see more upside pressure in EURSEK.
NOK: CPI up today – normally a very important figure, but oil is on the move to the upside, so impact of a downside surprise may be somewhat muted.
Economic Data Highlights
- Japan Apr. Machine Orders out at +3.8% MoM and +3.0% YoY vs. -2.1%/-1.4% expected, respectively and vs. +2.6% YoY in Mar.
- Australia Jun. Westpac Consumer Confidence Index out at 95.3 vs. 102.4 in May.
Upcoming Economic Calendar Highlights (all times GMT)
- Sweden Apr. Industrial Production/Orders (0730)
- Norway May CPI (0800)
- UK Apr. Industrial Production/Manufacturing Production (0830)
- UK BoE’s Carney to Speak (2000)
- New Zealand RBNZ Official Cash Rate (2100)
- New Zealand RBNZ’s Wheeler News Conference (2105)
- UK May RICS House Price Balance (2301)
- New Zealand RBNZ’s Wheeler before Parliament Committee (0110)
- Australia May Employment Change/Unemployment Rate (0130)