The day proved as chaotic as one might expect today, though most of the action was in the EUR-, GBP- and especially JPY crosses. The JPY went from weakness in Asia (new prominent high in USDJPY) to a sudden bout of strength on the ugly ADP number in the early US session and then back to even weaker weakness by the end of today's US session.
Chart: EURJPY and Bunds
Let's see how the JPY starts the first few days of the New Year before we all decide to hop aboard the weak JPY train. One development today speaking against the fresh eight-week highs in EURJPY was the rallying Bund market, which has been rallying all week. Bund yields and EURJPY are normally positively correlated, so JPY shorts should be hoping for a new Bund sell-off if they would like to feel more comfortable with their positions.
Let's see how the JPY starts the first few days of the New Year before we all decide to hop aboard the weak JPY train. One development today speaking against the fresh eight-week highs in EURJPY was the rallying Bund market, which has been rallying all week. Bund yields and EURJPY are normally positively correlated, so JPY shorts should be hoping for a new Bund sell-off if they would like to feel more comfortable with their positions.
Chart: EURGBP
Elsewhere, the GBP at first pulled flailed a bit for support vs. the Euro today after the strong German employment numbers and high EuroZone inflation number, but it reversed strongly again by later in the day and remains poised very close to the crticial 200-day moving average. A close below there largely destroys the rally attempt by EURGBP and could set up a sell-off to much lower levels.
Elsewhere, the GBP at first pulled flailed a bit for support vs. the Euro today after the strong German employment numbers and high EuroZone inflation number, but it reversed strongly again by later in the day and remains poised very close to the crticial 200-day moving average. A close below there largely destroys the rally attempt by EURGBP and could set up a sell-off to much lower levels.
In general, as we indicated earlier, we are a bit reluctant to draw too many conclusions from today's action with the end of month/quarter/year fixing implications in play, though our Monday message to the market: "It's do or die time for the US dollar" is so far resulting in more of a die than a do. EURUSD has now crossed firmly back above the previous 1.3435 low, GBPUSD is flying and the greenback never showed much fight against the commodity currencies this week, so if we are to avoid the impression that the greenback's star is fading, it must get something started quickly over the next couple of days.
Looking ahead
Tonight in Asia we have the quarterly Tankan survey out of Japan, Australian Trade Balance and Chinese Manufacturing PMI. Tomorrow features German Retail Sales, the UK Manufacturing PMI, and the US ISM Manufacturing Survey. Remember that most European markets and the US market are closed on Friday, so tomorrow is the last trading day of the week for many, with possibly treacherously thin markets on Friday as the US pushes ahead with its employment report despite the holiday.
Tonight in Asia we have the quarterly Tankan survey out of Japan, Australian Trade Balance and Chinese Manufacturing PMI. Tomorrow features German Retail Sales, the UK Manufacturing PMI, and the US ISM Manufacturing Survey. Remember that most European markets and the US market are closed on Friday, so tomorrow is the last trading day of the week for many, with possibly treacherously thin markets on Friday as the US pushes ahead with its employment report despite the holiday.
The other two critical markets worth watching next week are the US treasury markets (US 10-year yields still poised at the massive neckline on an upside down head and shoulders formation and treasury auctions already starting on Monday) and the oil market, with the May WTI contract poised less than a dollar from the 18 month+ highs.
Be even more careful out there than normal.
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