Read on the Trading Floor - 26 April 2024
Today’s focus… BoJ/MOF show no interest in JPY weakness, PCE disappoints and much more
Macro Themes At Play
Theme 1 - You can pass #USDJPY
Theme 2 - DXY longs disappointed by PCE
Theme 3 - Week ahead previews
Further reading and listening of note
Theme 1 - You can pass #USDJPY
A lot of ink has been spilt on a potential MoF intervention zone 155-156, but as we aim for 157.00/158.00 the market is left with nothing else to do but prod and probe and test their resolve. Are we now waiting for 160?
The gap lower in Tokyo CPI on the back of a repricing of school fees (but when subtracted CPI is still slowing faster than expected), BoJ revising lower their core inflation projections to around 2%, "bond purchases to remain consistent", the yield story in the US and steeper curves globally are all supporting cross-JPY higher. As we approach Japanese Golden Week holiday it feels like JPY will be dominated by US yields more so than local authorities. The threat remains, the risks of being long USD is not free but the key determinant is US 10year yields drifting to >5% more so than MOF supplying USD at this stage or the BoJ hiking rates aggressively. It's July or even Oct before the mkt expects something from the BoJ.
ING - Markets disappointed with Bank of Japan as yen hits new lows
Nikkei Asia - BOJ stands pat, gives no hint of imminent tightening
Bloomberg - Bank of Japan’s Stand Pat Decision Fuels Further Yen Jitters
The MacroTourist (YEN WEAKNESS FINALLY SHOWING UP IN U.S. DATA?
Theme 2 - DXY longs disappointed by PCE
Growing USD trade as #1. Corp T+2 day for settlement on Tuesday 30th April, #2. rebalancing flows for month end models are also supporting USD and #3. ING see a window for a "delayed strengthening of the dollar is expected due to higher Treasury yields, widening swap differentials, and falling equities"
However, USD bulls are certainly frustrated over the past 24/48hrs, if not all year long!!! FX is a relative play and the better German data, steepening global curves in unison has slowed the relative widening of interest differentials, commodities are hot and will weigh on USD sentiment, government subcomponent of US GDP waning (fiscal finally wearing off?), exports also dropping (DXY too strong #ccy wars?) and over the long run stock market earnings will follow GDP lower.... The Fed may not cut when others will, but the momentum in long USD is extremely disappointing. If you asked any investor where EURUSD would be if the market went from pricing 6 to 1 cut in 2027 it would not be 1.07 choice!
Once again, it's two steps forward and one back today for USD bulls as the inline 0.3% PCE print takes any sort of momentum out of the USD into the weekend. The whisper number was 0.4% or hotter after yesterday's 3.7% aroused the stagflationary gods. Maybe we simple need a CNY deval to get this FX market going!!!!!
ZeroHedge - China Is Pivotal For US Inflation's Path
The NY Times - The Fed’s Favorite Inflation Index Remained Stubborn in March
Theme 3 - Week ahead previews
Nomura - Who is Exceptional?
ABN Amro - The week ahead: 29 April – 3 May 2024
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