Subdued Activity
Trading was light during London hours as markets brace for the arrival of Hurricane Sandy, affecting trading sessions. The US Securities Industry and Financial Markets Association (SIFMA) has recommended an early close at 12:00 local for today while Equity markets will be closed. However, at present the Treasury Bond auction is still scheduled to go forward while several electronic platforms will remain open. Overnight EURUSD traded 1.2887-1.2963 and USDJPY 79.53-79.75 as the data flow largely avoided affecting major markets. UK credit numbers were solid, bolstering hopes for the BoE that the FLS is indeed having a positive effect on the economy. Otherwise, the focus will be on the upcoming BoJ decision. Our Japan economists expect the BoJ to increase the size of its Asset Purchase Programme by JPY10 trn, though this is now a consensus view and only a shift in the distribution of potential assets would potentially affect price action. Clearly though, clients believe that movement on this pair probably holds the most promise in the near future. IMM positioning data released by the CFTC on Friday shows that yen shorts jumped very significantly last week – and we would have to look back 18 months to see shorts build so rapidly over a single week. Clearly, with the market already prepositioned for considerable easing, bolder BoJ action will be needed to drive USDJPY sustainably higher in the near-term. Meanwhile there is little immediate sign of a breakthrough in negotiations between Greece and the troika. As at the time of writing, one of Greece’s three coalition parties maintains its resistance to labour reforms which the troika insists on – and negotiations appear to be bogged down on this key point. We still expect Greece to receive the next installment of external aid, but it is quite clear that the road to eventual disbursement is likely to be bumpy, and FX markets are not currently priced for any nasty surprises. Ahead today, core PCE and Personal income figures are out in the US.
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