JPY crosses are losing momentum in places, and what can’t continue to go up, may have to go down first. Meanwhile, the USD rally remains very much on track outside of a possible USDJPY hiccup soon.
JPY correction scenario?
There’s nothing specific in the news flow, but the strong bond market rally in the US and in Europe and the apparent calming of the waters for the moment in Japanese government bonds together with technical developments in some places (stalling USDJPY, divergent momentum in EURJPY, AUDJPY dipping below 100.00 today, etc…) suggest that the risks are growing of a significant JPY cross consolidation. Stay tuned – the trigger for any such broad based JPY strength would potentially kick-off with a move through the clearly even more important 101.80/102.00 area in USDJPY after yesterday’s action.
Chart: AUDJPY
Note the pair poking below he 55-day moving average for the first time since last October and breaking into the Ichimoku cloud on the daily.
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Late yesterday, the San Francisco Fed’s Williams said that the Fed might look to taper its asset purchases in the next few months and could even halt the buying by the end of the year if “all goes as hope”, which contrasted with the very ugly data and had the dollar doing an about face to strength after the previous weakness earlier in the day.
Looking ahead
The rest of today’s data calendar is very thin, with only Canadian inflation data and the preliminary US University of Michigan Confidence survey to distract us in the North American morning. USDCAD may continue to get impetus off these figures as we look for a test of the top of the range above 1.0300+ soon in USDCAD provided no reversal sets in. The support at 1.0150 was double underlined over the last couple of days, with minor support moving up to 1.0220 now. Zooming out in the big picture, I fully expect that the pair is gearing up for a test of 1.0500 and beyond eventually as this appears to be the pedestrian version of the AUDUSD downside due to the tremendous move lower in AUDCAD (that latter pair is showing signs of fading momentum here locally, so perhaps CAD is due to pick up volatility-wise).
Chart: USDCAD
Interesting if we get a strong close today for an impressive weekly bar that possibly sets up a big break of the massive layers of overhead resistance that began forming all the way back in 2010.
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Next week we have Bernanke out testifying before the JEC in US congress. The WSJ’s Hilsenrath, the supposed Fed insider has been out tweeting that Fed officials are about to announce something big in “days”. Is this noise or for real and would that be at this weekend’s Bernanke speech or at his “Economic Outlook” testimony next Wednesday?
The markets have never felt more tense to me than at the present time – the sense of unreality in equities is amazing to behold, and I suspect this is linked to the fate of the JPY crosses for the near term as well – i.e., that an across the board return in volatility could finally hit JPY crosses very hard – perhaps initially in USDJPY the hardest, but then elsewhere even harder if we get a “deleveraging panic” type of mood.. Something tells me the markets aren’t about to get boring again.
So stay very careful out there and have a safe weekend.
Economic Data Highlights
- New Zealand May ANZ Consumer Confidence out at 123.7 vs. 119.2 in Apr.
- Euro Zone Mar. Construction Output out at -1.7% MoM and -7.9% YoY vs. +1.7% YoY in Feb.
- Canada Mar. Wholesale Sales (1230)
- Canada Apr. Consumer Price Index (1230)
- US May preliminary University of Michigan Confidence (1355)
- US Apr. Leading Indicators (1400)
- China Apr. Property Prices (Sat 0130)
- US Fed’s Bernanke to Speak at a College (Sat 1500)
- New Zealand Apr. Performance of Services Index (Sun 2230)
- UK May Rightmove House Prices (Sun 2301)
- Japan Apr. Nationwide Department Stores (Mon 0530)