The greenback made a sweeping statement yesterday that could prove a signal for strong further gains – as USDJPY broke 100 late yesterday. Now it’s up to EURUSD and the 1.3000 level to build the case for a lasting USD revival.
Unless this was merely the rumor mill gone amok in a rangebound market, this US dollar move is to be taken seriously, I feel. The rumours included word circulating that Hilsenrath was about to publish a story on possible FOMC tapering of asset purchases and that China was looking to increase its US dollar reserves. I’m tempted to believe good old fundamentals – in this case the very strong weekly US jobless claims number – played a part as well. As I posted yesterday, jobless claims tend to lead the unemployment rate, so this underlines the risk that the FOMC will have to start mulling that purchase tapering.
Also helping the US dollar in the light of what was going on already were comments from the Philadelphia Fed’s Plosser that he sees the unemployment rate possibly falling to 7% already by the end of this year and his favouring of reducing bond purchases (he is not currently a voting member of the FOMC. Even hard cord dove Evans of the Chicago Fed says the jobs market is improving – he is a voter this year, but would be one of the last ones to vote for tapering purchases.
JPY on the move, as are JGB’s
Overnight, the Japanese bond market got a bit disorderly and trading was halted. The absolute yields on Japanese bonds are still absurdly low – and 5-year yields (at 29 bps!) are still about 10 bps lower than the 2012 highs and 30 bps below the 2011 highs. With so much bond buying from the BoJ and the ability to manipulate markets – the pressure is more likely to be felt in the currency market rather than the bond market for now. Still, the relative speed of the move in bond markets is interesting and if yields get too high, it starts to become a question of when the Bank of Japan coordinates the “disappearance” of these bonds with the government. Japan’s finance ministry published a report showing that Japanese investors are buying foreign bonds and equities (). This is one of those key indicators that could drive the JPY sharply weaker – though one wonders if there could be sudden reversals of this development if equities decide they don’t like all of the volatility in bond markets or watching the US dollar move higher.
USDJPY moved as high as 101.20 in early trading as the 100.00 level has become the new line of support after the break of the descending line of that orderly consolidation.
Overnight, the RBA didn’t do anything to help the Aussie’s cause as the banks’ monthly report cut the country’s inflation forecasts and was downbeat on the prospects for growth. The move below 1.0100 in AUDUSD was critical, and now we have prospects for the first test of parity since early last summer.
Note the highlighs of today include the Canadian employment data for April (1.0100 looks like key upside pivot area) and the “lone dissenter” Esther George out speaking at 1800 GMT.
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