John J. Hardy, FX Consultant, Saxo Bank
We saw a sharp bond sell-off into the close today in the US as well as a bit of a comeback in risk appetite, which sets up an interesting picture for next week. JPY crosses to head higher in near term?
Risk appetite made an interesting comeback after trading at new lows for the week today. The usual risk instruments like the S&P500, AUDUSD , etc., reverse well off their lows for the day. Most interestingly, however, bonds finally gave up the rally impulse that seems to materialize day after day and sold off rather sharply after yields briefly touched yet another new low for the cycle. The latter move is the more interesting one, since equities haven't moved much over the last week anyway, while bonds have been the big focus. The bond sell-off pulled JPY crosses off their lows on the day.
EURUSD
EURUSD found support exactly on its 55-day moving average today (around 1.2665) after trading to the lowest levels in a month. The reversal into the close isn't emphatic enough to call bullish, so it will be interesting to see whether the support created by today's action holds into next week. EUR was generally weaker today as sovereign European debt suffered once again and the ECB’s Weber suggested that the ECB should look for normalization again, but that normalization will be dependent on the individual states and their financial systems. This is a bit more dovish than one would expect for Weber (many suggest he is aiming for the ECB presidency since Trichet’s term expires next year).
EURUSD found support exactly on its 55-day moving average today (around 1.2665) after trading to the lowest levels in a month. The reversal into the close isn't emphatic enough to call bullish, so it will be interesting to see whether the support created by today's action holds into next week. EUR was generally weaker today as sovereign European debt suffered once again and the ECB’s Weber suggested that the ECB should look for normalization again, but that normalization will be dependent on the individual states and their financial systems. This is a bit more dovish than one would expect for Weber (many suggest he is aiming for the ECB presidency since Trichet’s term expires next year).
AUDJPY
JPY crosses woke up a bit after generally trading lower on the week as the US bond market finally consolidated a bit after the US 10-year note yield dipped to within 3 bps of the 2.50% yield mark. If risk appetite continues to comeback early next week and the negative AUD sentiment has gotten ahead of itself, we could see further consolidation in the JPY crosses and in AUD as well, though we are still looking for the next big AUD sell-off in the bigger picture.
JPY crosses woke up a bit after generally trading lower on the week as the US bond market finally consolidated a bit after the US 10-year note yield dipped to within 3 bps of the 2.50% yield mark. If risk appetite continues to comeback early next week and the negative AUD sentiment has gotten ahead of itself, we could see further consolidation in the JPY crosses and in AUD as well, though we are still looking for the next big AUD sell-off in the bigger picture.
Looking ahead
The biggest event on the horizon for FX at the moment is the Australia election, of course, which we discussed this morning. But the major treasury markets bear watching next week as this could shake up the JPY crosses next week. It's definitely worth noting that the US treasury is set to auction over $100 billion in treasuries – of three, five and seven year duration (auctions on Tuesday through Thursday). Bond investors may be wondering whether it is time for some consolidation in the bond market with this supply on the way and considering the furious rally in bonds of the last few weeks. Bond sentiment is said to be rather extremely bullish as well – though this is only reflected in the US futures market by the evaporation of the huge short position in futures so far, rather than an outright long position.
Stay tuned.
The biggest event on the horizon for FX at the moment is the Australia election, of course, which we discussed this morning. But the major treasury markets bear watching next week as this could shake up the JPY crosses next week. It's definitely worth noting that the US treasury is set to auction over $100 billion in treasuries – of three, five and seven year duration (auctions on Tuesday through Thursday). Bond investors may be wondering whether it is time for some consolidation in the bond market with this supply on the way and considering the furious rally in bonds of the last few weeks. Bond sentiment is said to be rather extremely bullish as well – though this is only reflected in the US futures market by the evaporation of the huge short position in futures so far, rather than an outright long position.
Stay tuned.
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