Good morning,
Well as I’ve said many times before and will continue to say in the 16 or so years that I’ve been trading the one love that I have fostered most in all that time is for the Japanese. I hear all of you currently screaming why of all things the Japanese? Well let me tell you (and this extends not only to their fine sushi, but more importantly to all levels of government) it’s because they are all so blatantly confused that no one in their right minds now takes them seriously and anyone that dares to is likely to wear pain as a result.
Take the developments of the last 36 hours as the perfect example of what I like to refer to as bureaucratic inefficiency. First off we had (as noted yesterday) the newly appointed Japanese finance minister Kan espousing the virtues of a weaker JPY and citing the 95.00 level in the USDJPY as comfortable! Then a mere 24 hours later we had a raft of official comment from the likes of the fin services minister, the national strategy minister and finally the PM himself all saying things like the government should and will not be involved in directly influencing the currency market, the fact that they are closely monitoring the market but not prepared to comment about the state of the current rate of exchange and finally the fact that volatile moves in the rates should be monitored but are likely given the state of the global economy…..
Now folks if you can decipher the above into one united intelligent comment on what they are or aren’t prepared to do about the prevailing FX rate, then I would kindly ask that you do so and reply back to me so that we’re all on the same page. The long and short of it is that as I mentioned in all the years that I have been doing this I have only once seen the BOJ physically intervene and all the rest has been jawboning. At least back in the day it was unilateral, where as now it’s just simply confusing and ultimately ineffective. Net result the USDJPY looks like it is now going to struggle to get through 94.00 in any significant fashion and in all likelihood will in the coming week or so once again retrace and retreat into the 90-92 zone.
Ok enough venting and raging over the Japanese and onto more important matter like today’s NFP. The market is closely anticipating a positive print with the potential for a fall to the official unemployment rate or at the very least no change at all. Interesting. As usual I take the contrarian view and say that after the last print which was ridiculously good (almost out of nowhere I might add) we might be due to see some revisions on this number and this could indeed take the street by surprise.
So what are the likely outcomes? Well if the numbers are better we’ll see a good kick further in the prevailing risk appetite but equally so the USD is likely to catch a bid tone as the market embraces the possibility of an exit strategy even closer at hand than previously thought. However if there is a disappointment then we could very well see a drop in the US long end yields, narrowing the spread between them and Japan and thus putting further downward pressure on the USDJPY.
Otherwise overnight we had the Fed issue a statement (very cryptically) about the liquidity and capital requirements of deposit taking institutions in the US which to some signaled the increased likelihood of an exit….
On the majors today;
EURUSD: Still range bound and the risk certainly remains to the downside looking for another test of the 1.4250 level.
USDCAD: I remain bullish but don’t rule out dips into 1.0300/0280 at which point I add to my long positions.
GBPUSD: Sell it! Go on I dare you. Anything above 1.6050/6100 needs to be sold looking for another move into 1.5920/1.5850
AUDUSD: Still running out of steam and I would suggest for those prepared to spend a bit of money buying some downside in the form of 2 week puts.
USDJPY: I remain a seller preferring to scale into positions from 93.30/40 and above into 93.80/00.
Best regards,
Ken Veksler.
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