The market is bidding up Euro’s across the board as GBP, CHF and JPY were all weak yesterday. Kuroda’s press conference needs to feed the hungry JPY bears or we risk consolidation soon.
Bank of Japan
The Bank of Japan left the monetary base target unaltered again for the second time since the early April blast off of Kuroda’s Big Move. There was no mention of the moves in bond markets (of course, this being the only thing the market is looking for in reading how determined Kuroda and the government are to stay the course. Kuroda’s Presss Conference will be the thing to watch for further developments – it was meant to start by the time I am writing this, but has apparently been delayed a bit – so stay tuned for developments there. In other data overnight, it was interesting to note the split in the Trade Balance data, with imports rising far faster than exports – this is the wrong way around if Abenomics is meant to work. Yes, it is still very early days, but every scrap of data is worth picking over as the success of Japan’s experimentation with new extremes in monetary policy is the biggest theme going among the major currencies.
Aussie down under in the dumps
Australian confidence dove to fresh eight month low only a couple of months after posting a two-year high as the momentum Down Under is really flagging and is likely to continue to do so as the years of an overvalued currency, post-credit bubble environment, and a retooling China (away from basic commodities investment) is going to give the country an economic hangover for years. So far, AUDUSD has only managed a rather meek consolidation and the lack of bounciness is telling.
EURCHF do or die
EURCHF busted back through 1.2500 in a show of broad Euro strength and perhaps in sympathy with the still weak Japanese yen. The pair could continue higher, but the path for the CHF will likely be similar to that for the JPY, i.e., if the JPY perks up, I would be surprised to see EURCHF continuing to rally and vice versa. Note that the SNB ‘s Jordan will be out speaking today. Technically, the pair looks like it wants to rally further and we’re within striking distance of two-year highs (around 1.2570).
Chart: EURCHF
A lot of free space above the 1.2570 area if we get there for this pair. The focus could quickly shift to the next round figure at 1.3000. We’ll likely need to see cooperative JPY crosses (also moving higher) for such a development, however, and the momentum will need to keep up or we are faced with the boring reversal/rangebound scenario.
Looking ahead
The Bank of England is up shortly with the latest minutes – hard to imagine anything spectacular as we are in a kind of “lame duck” period for the BoE, which won’t want to make any major splash now that economic data has picked up slightly and with a new remit and new leader on the way in the next couple of months. The weak inflation data yesterday was seen as a green light for Carney to indulge in more monetary experimentation and EURGBP rallied through key resistance around 0.8500. This could be the start of something for the pair towards 0.8600 or even higher. UK Apr. Retail Sales are also on tap.
Later we have the Bernanke testimony to entertain us – will be interesting to watch the Republicans challenging Mr. Bernanke’s policy again as the anti-Fed stance is becoming a cornerstone of Republican political positioning – even if that makes little sense for their constituency and is full of hypocrisy in many cases. Mr. Bernanke is likely to offer cautious optimism and the market will focus on the way he hints at the potential for a “tapering” of asset purchases. There is certainly room for surprise either way as the market seems uncertain on what to do right here with the greenback. Tonight we have the latest China HSBC flash manufacturing PMI, which had dipped back close to the 50 level in April and is expected unchanged. The Chinese regime is faced with the tall task of choking off the regenerating housing bubble/hydra and a refocusing of its growth efforts away from brute infrastructure investment and building and toward consumption and higher environmental standards.
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