LovingForex.com

JPY Sells off Anew on BoJ/MoF Spat

The JPY was weaker again into the late European session as US treasury futures sold off again and after another low inflation figure (the PPI this time) suggests that the BoJ will increasingly lean toward rolling out new quantitative easing measures to fight deflation, though the BoJ and MoF aren't necessarily on the same page as to how to go about fighting deflation, judged from the rhetoric that makes it to the press, at least. The still relatively new Finance Minister Kan - he who was touted as a more pronounced proponent of a weaker JPY when taking office in January - has been pressuring the BoJ to do more to fight deflation, but also said overnight that fiscal discipline is the Japan's "biggest domestic task" since it is more severe than elsewhere in the world.

Nonetheless, he is urging the central bank to target inflation at 1 percent or more, though it appears the BoJ is essentially throwing its hands up in the air at this point and trying to deflect some of the blame. The BoJ's Suda said overnight that "We have to bear in mind that monetary policy can provide support to the economy when structural reforms are implemented, but it can't push forward the reforms themselves." The bank of Japan is scheduled to meet next week.

The pull back higher in USDJPY helps to underline the validity of the recent rally, but we must first break through the 55-day moving average that stopped the rally last time at 90.68 and then the top of the Ichimoku cloud a bit higher at 90.95 (though that level is dynamic and falls toward 90.57 tomorrow.)

Another round of weakness for the pound

Sterling sold off as well today, after terrible manufacturing data (especially troublesome considering the supposed advantage a weak currency would give British manufacturers' products) and on new criticism from Fitch ratings, which said that the UK was taking too long to cut its budget deficit. Everything looks about as bad as it can get for the pound at the moment, though with such obviously negative fundamentals and the minority government acting as the cherry on top for the sterling bears, and you have to wonder whether positioning is reaching extremes in short pound trades. GBPAUD and GBPCAD have been some of the biggest movers in recent months and are reaching close to 25-year lows.

Trade Data

China's trade data came in line with expectations and shouldn't be seen as a large drop since Feb. trade data for some reason always sees a seasonal trough (Chinese trade data is not seasonally adjusted). The year-on-year advances on Exports and Imports were both around 45%, a number that would seem to challenge credulity until we look at last year's trade figures, which were off over 20% at times and may have been even worse than that had they been honestly accounted for.

Germany's trade data today was a shocker, with exports tumbling. Germany better hope that this was a fluke as its economy is very dependent on strong exports.

Looking ahead

Risk appetite continues to make modest gains, though we double underline "modest" here as most currency pairs are still within recent ranges. EURUSD is lost in a mind-numbing range for the moment and we wait for a break of either 1.3530 or 1.3700 to provide short term directional interest, with the assumption that the trend is still a downtrend that is merely at risk of a temporary consolidation higher.

Meanwhile, in equity-land, the US S&P500 is eyeing the highest levels since October 2008, while the tech-heavy Nasdaq 100 is trading at levels last seen before the crisis even hit. Emerging market equities are further below their peak for the year than the US S&P,  a bit curious when you would think that EM should be leading the charge here....The JPY crosses seems to be the big movers at the moment, as we wait and see whether the upside resistance in USDJPY will give way. Also interesting is EURNOK, which is approaching 8.00 again after strong CPI and PPI prints today and a long period of going nowhere since its first try at that level about three weeks ago.

Look out for the RBNZ tonight, as we focus on whether the bank will provide further guidance on when the first "mid-2010" hike will take place. NZD is mounting quite the comeback on this latest run higher in risk appetite, though whether this is a squeeze on NZD shorts ahead of the RBNZ remains to be seen. The meeting is arriving at key levels for the AUDNZD cross, which recently broke to its highest level in almost 10 years at 1.2970 and now finds itself trading right on that level (now support) after recently making a run above 1.3100. Stay tuned.

Chart: AUDNZD

Also tonight we have a raft of (massaged) Chinese data that may further indicate how harshly the Chinese will continue to try to crack down on its overheating economy. The Australian employment data is also up tonight. Tomorrow features the SNB and the US Trade Balance number for January.

Be careful out there.

Economic Data Highlights

• US Weekly ABC Consumer Confidence out at -49 vs. -48 expected and -49 last week
• Australia Mar. Consumer Confidence rose to 117.3 after 117.0 in Feb.
• Japan Jan. Machine Orders fell -1.1% YoY vs. -0.6% expected and -1.5% in Dec.
• Japan Feb. Domestic CGPI fell -1.5% YoY as expected and vs. -2.1% in Jan.
• Australia Jan. Home Loans fell -7.9% MoM vs. +2.0% expected
• Germany Jan. Trade Balance out at 8.0B vs. 14.5B expected and 13.4B in Dec.
• Germany Feb. final CPI out at +0.4% MoM and +0.6% YoY vs. +0.2/+0.4% expected, respectively and vs. +0.4% YoY in Jan.
• Sweden Jan. Industrial Production out at -0.2% MoM and +1.6% YoY vs. -1.7/+0.8% expected, respectively
• Norway Feb. CPI out at +1.3% MoM and +3.0% YoY vs. +0.9/+2.6% expected, respectively
• Norway Feb. Underlying CPI out at +1.9% YoY as expected
• Norway Feb. Producer Prices including oil out at +2.1% MoM and +18.8% YoY vs. +0.8/+17.4% expected, respectively
• UK Jan. Industrial Production fell -0.4% MoM and -1.5% YoY vs. +0.3/-0.8% expected, respectively
• UK Jan. Manufacturing Production out at -0.9% MoM and +0.2% YoY vs. +0.2/+1.4% expected, respectively

Upcoming Economic Calendar Highlights

• UK Feb. NIESR GDP Estimate (1500)
• US Jan. Wholesale Inventories (1500)
• US Weekly DOE Crude Oil and Product Inventories (1530)
• New Zealand RBNZ Cash Target Announcement (2000)
• New Zealand Feb. Business NZ PMI (2130)
• Australia Feb. Employment Change and Unemployment Rate (0030)
• China Feb. Producer Price Index (0200)
• China Feb. Consumer Price Index (0200)
• China Feb. Retail Sales (0200)
• China Feb. Industrial Production (0200)
• China Feb. Urban Fixed Asset Investment (0200)

Saxobank

Analysis Disclosure & Disclaimer

Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Saxo Bank that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated.

Saxo Bank utilizes financial information providers and information from such providers may form the basis for an analysis. Saxo Bank accepts no responsibility for the accuracy or completeness of any information herein contained.

Any recommendations and other comments in Saxo Bank's analysis derive from objective fundamental macro economical and company specific calculations, statistical and technical analysis, and subjective general market assessment.

If an analysis contains recommendations to buy or sell a specific financial instrument, such recommendation should be seen as Saxo Bank's opinion that the specific instrument will respectively outperform the relevant market or underperform compared to the market. Saxo Bank's recommendations should statistically correspond to an even distribution between buy and sell recommendations.

The recommendations may expire promptly due to market volatility and in general, Saxo Bank does not anticipate its recommendations to be valid more than one month. An analysis will be updated if and only if a market development or other issues relevant to the analysis render a new analysis on the same topic relevant. Saxo Bank's analysis does not cover any specific financial product over time but only products which Saxo Bank's strategy team finds it important to cover at any given point in time.

In order to prevent conflicts of interest, Saxo Bank has established appropriate business procedures, incl. procedures applicable to research and analysis to ensure objective research reports. Saxo Bank's research reports have not been discussed with the parties, e.g. issuers of securities, mentioned in the analysis.

Saxo Bank is under supervision by the Danish Financial Supervisory Authority. Saxo Bank does not engage in corporate finance activities and accordingly, Saxo Bank's employees, incl. the persons responsible for an analysis, do not receive remuneration associated with investment banking transactions.