And a bit more this Wednesday 25.04.2018
I had the BOJ preview on a bit earlier as a stand alone event but of course there’s tons more going on.
Start of last week I was looking for these two weeks to be decisive for the JPY. Let’s see if we found some pieces of the puzzle.
-Japanese investors seem to have put their money where there word was, buying more unhedged foreign bonds and USDJPY from 105. After weeks of negative bond/stocks flows before, the April data have reversed, let’s see if tonight’s data confirm the trend. The rising US yields have probably accelerated their process a bit.
– As talked about in our live trading room, seasonals see an increased importer hedging activity ahead of next week’s Golden Week holidays in Japan. Add to that holiday goers’ travel cash demand.
-Last week’s Japanese inflation data showed a small dip, keeping BOJ firmly in the easing seat and JPY in check.
-M&A flows are negative JPY these days. Latest Takeda-Shire of course but there are LNG projects in the pipe as well as banking, boutique tentacular outward expansions.
To illustrate these points: Out of the 19 April Tokyo USDJPY sessions so far we had 5 down- and 14 upside. From half April we had only one downward session really, the rest up. The rapid swings down have mostly been produced outside Tokyo in particular during the NYK sessions like the one yesterday.
What’s to happen from now till month end?
-Big US bond auctions, the first one, the 2years has done reasonably well, let’s see how the rest fares. Something tells me Japanese investors will like the higher yields and could be reasonable takers.
-Tokyo Inflation data out on Friday. Tokyo represents 30 odd % of total Japan’s economic activity, not to be overlooked
-Japan IP and retail sales, March data for most, the wage hikes might not affect the latter yet.
-Japan employment data which have never directly moved the JPY tbh.
-ECB of for the EURJPY traders
-BOJ of course
-A slew of data out of Europe and the US which could cause some waves.
-Month end flows: Models trying to predict the rebalancing flows are calling for USD purchases vs JPY based on Japan’s stock market and bond outperformances compared to the US markets, move which has basically only accelerated the past week. OF course the US markets are much vaster than European or Japanese and USD holdings prime but the cross involvement is sizeable.
Now this last one has drawn my particular attention in all this mix of events.Since the month end flows come at the same time of the increased investor and corporate, holidays activity, if we would take all others the same, BOJ not budging for instance, bonds and equities not exploding( I’m taking a big risk here), we may be in for a real test of the 110 in the upcoming sessions. There’s an army of hurdles: clouds( daily top109.28, weekly bottom 109.94), moving averages, fibs of all sorts between 109.30 and 110 in addition to Ryan’s piece on rates highlighting exporter offers, but I really want to monitor very closely the Tokyo sessions and the upcoming fixings.
Of course I’m talking my book since I’m long USDJPY. I’ll continue to trade the range up jobbing extra longs around my base(stop 108.45) but I’m throwing myself in the river here by sharing my gut feeling USDJPY will trade above 110 before the end of the month. It may be a short lived break and May to reverse the whole game but for all the above and looking at the pa, it’s a pretty strong feeling. Where can we end? Top of the weekly cloud and 61.8 fib of the Nov-Mar decline lies at 110.88, why not?
From there if reached on the last day of the month, I may be tempted to reverse a few for a correction.
IF Boj moves all bets are off of course. I’ll be trading very light into their decision.