CIBC: Key Headlines: FXWW

From the FXWW Chatroom: BoJ cutting long dated JGB purchases, is this tapering? Our macro strategist Patrick Bennett said this is not expected – in plain language, this is tapering. What is important, Pat says, this is to build a picture that the previous level of purchases are not thought to be currently necessary (BoJ hasn’t rescinded its overall policy of easing), and on that, hard to disagree when the economy has been doing well. Jpy has looked to be breaking the previous correlation with Nikkei and also breaking each tick correlation with UST 10’s. I like Jpy as an outperformer and today’s action from BoJ adds to that.
FX Flows
Aussie dollar strengthened slightly following stronger November building approvals. However, job advertisements came out weak. Revisions for both data were also softer. AudUsd, which traded low 0.7840’s, got a push above 0.7850. Hearsay offers ahead of 0.7900 from leveraged names, talk of speculative accounts building up short position. Downside is clean. Please note, there are some Aud2.5bn worth of options maturing Jan 12 between 0.7800 and 0.7815.

Kiwi was also slightly firmer and I do not have a reason why. Positioning index indicate that speculators are short Kiwi against Usd and the crosses. I do suspect someone or some people is adjusting position for stops above 0.7200.

Saw early birds picking up UsdJpy but good supply high 113-teens stalled the move 113.18. EurJpy sold, sent the UsdJpy below 113-handle. Good selling of EurJpy emerged and sent the cross lower from 135.40. An announcement from BoJ that it reduced buying of JGBs maturing in more than 10 years by Jpy10bn, which people look at as tapering. This dragged UsdJpy along taking out key Ichimoku Cloud levels. North Asian real money accounts (non-Japanese) were also selling UsdJpy from 112.95. Saw UsdJpy bids scattered in platforms near 112.50. Option strike 113.00 rolling off this week totalling $3bn.

Nothing much to pen about the boring single currency. Offered when EurJpy sold then flipped back to 1.1975 on UsdJpy sales. There is a decent 1.1985 option strike maturing today, for Eur2.3bn. I heard there are stop sell orders just beneath the low recorded on Dec 29.

Move in UsdJpy has dragged Usd/Asia along as well. However some EM traders are cautious because of central bank intervention.
USDCNY fixed at 6.4968, on high side of the range estimates.

A short-term view from our new EM trader Yee Tern on USD/AXJ: USD was firm yesterday started with the jump in UsdKrw and I have a feeling this short covering have legs to go but will be more pronounced in Usd/Asia pairs. One argument is the fwd/fwds are depressed LHS in the likes of UsdIdr, UsdPhp and UsdMyr and covering short USD is still not “expensive”. USDCNH traded decisively higher above psychological 6.5 this morning and the CNH curve feels bid across. Also, we are not too far from the downside support of 6.4902 which is the 200weekly MA.

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