The BoJ is on tap, as the market tries to shake off last week’s sharp consolidation in the JPY crosses. It’s somewhat curious that the U.S. dollar has not come back more broadly in line with the USD/JPY rally.
Japan’s Current Account data and BoJ
The Japanese current account data looks encouraging for the Abenomics story, but the uptick is merely a result of the weaker JPY as revenues from abroad translate into more of the currency. The results are actually quite disappointing if we look at the magnitude of the yen’s weakening across the board since last autumn. Currency effects supposedly operate with a considerable lag, so we’ll need more data in coming months. Another BoJ meeting is under way, with the outcome to be announced overnight. The BoJ’s hands are completely tied on the intervention front due to the recent G7 commitment not to intervene, so it will be up to market forces and possible new policy initiatives from the BoJ to keep the yen weaker from here. That will be an easier proposition for the BoJ, if yields continue higher. It will obviously be more difficult if we see the opposite, and another round of risk asset retrenchment. I don’t expect anything dramatic on the policy front from this week’s BoJ meeting – it’s still too early . Last week’s JPY melt-up seems to have been a short term positioning adjustment, and “natural” consolidation until proven otherwise.
China’s trade data
The Chinese trade surplus was in line with expectations, and very slightly higher than last year. It is unknown to what degree the still large surplus reflects the true terms of trade after a purported crackdown of over-booking exports, etc. The most interesting aspect of the report was the actual year-on-year drop in imports, which should be seen as an ongoing risk for Australia. The Aussie responded accordingly overnight with a run at that key 0.9400 level, which is a major milestone in this sell-off.
Bank of Canada and CAD
The interesting implications from last week include the USD/CAD rally finding itself on the ropes around 1.0200, after an absurdly strong Canadian employment report. The first BoC meeting under new governor Poloz doesn’t take place until July 17. BoC developments clearly were overshadowed by the intensity of other market themes and volatility last week.
Chart: USD/CAD
This pair needs a strong rally this week, or we risk the impression that the rally is fading and the pair risks a dip back into the seemingly eternal range purgatory toward parity and below. A move back above the 1.0300 level would be the important first step.
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Looking ahead
As posted on Friday, the USD/JPY and EUR/USD charts have been very negatively correlated. It is interesting to see the strong USD/JPY snapback unaccompanied by a sharp reversal of the EUR/USD back into the lower range. Either the gap will close there, or the ECB has triggered a behavioural shift. A move below 1.3100 would threaten the EUR/USD rally sequence.
There’s a considerable hubbub on the German Constitutional Court, and its hearings on the constitutionality of the ECB’s OMT programme. The market seems more than nonchalant on this front as the EUR/USD arches back above 1.3200, but let’s all pay attention to developments there. Over the weekend, Merkel was back banging on the table about the need for budget discipline and reforms of labour markets.
Otherwise, the U.S. calendar this week is mostly about the Thursday Retail Sales data and the Friday University of Michigan Confidence update for June. The wait is rather long until next Wednesday’s FOMC meeting and next Thursday’s SNB meeting.
Economic Data Highlights
- China May Trade Balance out at +$20.43B vs. $20B expected and +$18.16B in Apr.
- China May CPI out at +2.1% YoY vs. +2.5% expected and +2.4% in Apr.
- China May Industrial Production out at +9.2% YoY vs. +9.4% expected and +9.3% in Apr.
- China May Retail Sales out at +12.9% as expected and vs. +12.8% in Apr.
- Japan Apr. Adjusted Current Account Total at +¥852.7B vs. +¥380B expected and +¥342.4B in Mar.
- Japan May Consumer Confidence rose to 45.7 vs. 44.7 expected and 44.5 in Apr.
- Switzerland May Unemployment Rate out at 3.2% as expected and vs. 3.1% in Apr.
- France Apr. Industrial Production out at +2.2% MoM and -0.5% YoY vs. +0.3%/-4.0% expected, respectively and vs. -2.1% YoY in Mar.
- Switzerland Apr. Retail Sales out at +3.3% YoY vs. -0.9% in Mar.
- Sweden Apr. Industrial Production out at -0.5% MoM and -0.8% YoY vs. +0.3%/+0.7% expected, respectively and vs. -0.1% YoY in Mar.
- Sweden Apr. Industrial Orders out at -10.3% MoM and +1.7% YoY vs. +11.1% YoY in Mar.
- Norway May CPI out at +0.1% MoM and +2.0% YoY vs. -0.1%/+1.8% expected, respectively and vs. +1.9% YoY
- Norway May Underlying CPI out at +0.3% MoM and +1.4% YoY vs. 0.0%/+1.1% expected, respectively and vs. +1.5% YoY in Apr.
- Canada May Housing Starts (1215)
- U.S. Fed’s Bullard to Speak (1350)
- Switzerland SNB’s Danthine to Speak (1900)
- U.K. May RICS House Price Balance (2301)
- Australia Apr. Home Loans (0130)
- Australia May NAB Business Conditions/Confidence (0130)