NZDJPY LONG NZD/JPY breaks resistance
NZDJPY resistance at 8555/75. Shorts need stops above 8590.
Targets: 8520, 8480.
CADJPY continues higher as expected but I have not managed to get us in to a long. I should have had us buying on a break above 102.90 so I will use this as a support today.
Longs at 102.90/70, stop below 102.50.
RBNZ announces 0.25% OCR hike, keeps peak rate forecasts unchanged.
Retreat in yields, upbeat concerns about Japan manufacturers also weigh on prices.
Risk catalysts are the key, RBNZ’s Orr eyed for immediate directions.
NZD/JPY stands on slippery grounds as it takes offers around 81.50, down more than 100 pips on a day, as the Reserve Bank of New Zealand (RBNZ) fails to offer hawkish surprise to the markets on early Wednesday.
RBNZ announces 0.25% increase to its Official Cash Rate (OCR), as expected, during May month monetary policy meeting. It’s worth noting that the RBNZ defends its cash rate peak at 5.5% and exert downside pressure on the NZD/USD prices.
Apart from the RBNZ moves, the retreat in the US Treasury bond yields and recently upbeat concerns about Japan also weigh on the exotic pair.
That said, the US 10-year and two-year Treasury bond yields retreated from the highest levels since early March the previous day. On the other hand, “Business sentiment at big Japanese manufacturers turned positive for the first time this year and service-sector morale hit a five-month high, providing more evidence of an economy on the mend after a COVID-led recession,” per the monthly results of the Reuters Tankan survey.
Moving on, challenges to sentiment and the bond market moves can entertain the NZD/JPY pair traders while a press conference by RBNZ Governor Adrian Orr could offer immediate directions to the cross-currency pair. Should the policymaker manages to defend the hawkish bias, the New Zealand Dollar (NZD) may witness a corrective bounce.
Technical analysis
Despite the latest retreat, a one-month-old ascending support line, near 85.15 by the press time, challenges the NZD/JPY bears dominance.
Targets: 8520, 8480.
CADJPY continues higher as expected but I have not managed to get us in to a long. I should have had us buying on a break above 102.90 so I will use this as a support today.
Longs at 102.90/70, stop below 102.50.
RBNZ announces 0.25% OCR hike, keeps peak rate forecasts unchanged.
Retreat in yields, upbeat concerns about Japan manufacturers also weigh on prices.
Risk catalysts are the key, RBNZ’s Orr eyed for immediate directions.
NZD/JPY stands on slippery grounds as it takes offers around 81.50, down more than 100 pips on a day, as the Reserve Bank of New Zealand (RBNZ) fails to offer hawkish surprise to the markets on early Wednesday.
RBNZ announces 0.25% increase to its Official Cash Rate (OCR), as expected, during May month monetary policy meeting. It’s worth noting that the RBNZ defends its cash rate peak at 5.5% and exert downside pressure on the NZD/USD prices.
Apart from the RBNZ moves, the retreat in the US Treasury bond yields and recently upbeat concerns about Japan also weigh on the exotic pair.
That said, the US 10-year and two-year Treasury bond yields retreated from the highest levels since early March the previous day. On the other hand, “Business sentiment at big Japanese manufacturers turned positive for the first time this year and service-sector morale hit a five-month high, providing more evidence of an economy on the mend after a COVID-led recession,” per the monthly results of the Reuters Tankan survey.
Moving on, challenges to sentiment and the bond market moves can entertain the NZD/JPY pair traders while a press conference by RBNZ Governor Adrian Orr could offer immediate directions to the cross-currency pair. Should the policymaker manages to defend the hawkish bias, the New Zealand Dollar (NZD) may witness a corrective bounce.
Technical analysis
Despite the latest retreat, a one-month-old ascending support line, near 85.15 by the press time, challenges the NZD/JPY bears dominance.
Comment:
BoJ’s Ueda: Still Some Distance to Sustainably Achieve 2% Inflation Target
Comment:
Bond Yields Continue to Fall
Government bond yields around the world fell for a third day on Wednesday, with the US 10-year Treasury note yield retreating to 3.74%, a fresh low since late June. Investors are getting increasingly convinced that major central banks, and specially the Fed will soon end their tightening campaign. Bets for a 25bps hike in the fed funds rate next week currently stand at 97% but investors remain divided on the need of further increases, with chances for a September increase currently standing at 12% and for November at 23%. Meanwhile, the ECB is also set to raise rates by 25bps again next week while there is just a 70% chance of a further rate rise in September. In the UK, another increase in borrowing costs is seen as certain next month, but a smaller-than-expected inflation reading for June lowered bets on further BOE rate hikes. On the other hand, traders are increasingly speculating the Bank of Japan could adjust its ultra loose monetary policy next week.
European Markets Head for Higher Open
European equity markets were headed for a higher open on Wednesday as investors reacted to data showing the annual consumer inflation in the UK stood at 7.9% in June, the lowest reading since March 2022 and below forecasts of 8.2%. Investors also await final euro zone inflation figures later on Wednesday to guide the economic and monetary policy outlook in the region. Moreover, markets look ahead to the latest earnings report from Dutch chip industry giant ASML, as well as from major US firms such as Tesla, Netflix and Goldman Sachs. DAX and Stoxx 600 futures rose 0.2% in premarket trade, while FTSE 100 futures jumped 0.8%.
Government bond yields around the world fell for a third day on Wednesday, with the US 10-year Treasury note yield retreating to 3.74%, a fresh low since late June. Investors are getting increasingly convinced that major central banks, and specially the Fed will soon end their tightening campaign. Bets for a 25bps hike in the fed funds rate next week currently stand at 97% but investors remain divided on the need of further increases, with chances for a September increase currently standing at 12% and for November at 23%. Meanwhile, the ECB is also set to raise rates by 25bps again next week while there is just a 70% chance of a further rate rise in September. In the UK, another increase in borrowing costs is seen as certain next month, but a smaller-than-expected inflation reading for June lowered bets on further BOE rate hikes. On the other hand, traders are increasingly speculating the Bank of Japan could adjust its ultra loose monetary policy next week.
European Markets Head for Higher Open
European equity markets were headed for a higher open on Wednesday as investors reacted to data showing the annual consumer inflation in the UK stood at 7.9% in June, the lowest reading since March 2022 and below forecasts of 8.2%. Investors also await final euro zone inflation figures later on Wednesday to guide the economic and monetary policy outlook in the region. Moreover, markets look ahead to the latest earnings report from Dutch chip industry giant ASML, as well as from major US firms such as Tesla, Netflix and Goldman Sachs. DAX and Stoxx 600 futures rose 0.2% in premarket trade, while FTSE 100 futures jumped 0.8%.
Comment:
Japan will release some key data over the coming days that could provide some directionality for the JPY. The yen hasn’t been acting all that “normally” recently, as traders hang on comments from Japanese officials that might indicate intervention to support the currency.
To make matters more confusing, the head of the BOJ, Kazuo Ueda, has said some things that appear to be contradictory. There’s a ball of forex yarn here that needs to be untangled to get a better idea of where the yen could be headed in the medium-to-long term.
First, the data
Tomorrow, Japan will publish its trade balance which is expected to see a dramatic reduction in the trade deficit to just ¥46.7B from ¥1.37T reported in May. Japan typically has relatively large fluctuations in its trade statistics, but if the forecast is correct, it would be the smallest deficit since the latter part of 2021. The weakness of the currency (and brief recovery earlier this year) have been a key factor affecting the trade balance, which is an important component for the BOJ’s decision-making.
The shrinking deficit is expected to be because imports are forecast to decline while exports are expected to grow. Part of that dynamic is seen as a result of the weaker yen meaning that exports are priced at a higher value. On the other hand, the shrinking imports are a sign of lack of dynamism in the economy. The erosion of purchasing power from a weaker currency could mean Japanese citizens are buying fewer things. That would be a worrying sign for the BOJ.
What’s the BOJ up to?
Just last Sunday, the Governor of the BOJ admitted that the weakness in the yen was a concern, and that the bank could take measures to address it. He used more technical speech, of course, talking about restoring market pricing. But the takeaway is what mattered for the market reaction. Just two days later, on Tuesday, he appeared to backtrack, saying that the BOJ is committed to easing.
This changing commentary shows the dilemma of the BOJ, which wants to keep easing in order to support the economy. That means not worrying about a weaker yen, because that helps exports. But the weaker yen has contributed to rising inflation, and slowing the economy. So the BOJ would be worried about a weaker yen.
Clearing up the situation
Ueda has repeatedly said that he wants to see inflation “sustainably” rising at the target rate of 2%. Inflation has been higher than that for months now. What he means is that the current bout of high inflation is seen as “temporary”, and the result of non-market driven yen weakness that has raised the cost of imported goods. “Non-market driven” here means things like carry trade and bets that the BOJ won’t intervene as the currency weakens. The BOJ is trying to cajole markets into getting the yen higher without actually having to do anything to strengthen the yen.
If inflation turns around and starts rising, however, the BOJ might have to come to the conclusion that they can’t have their cake and eat it too. That might prompt a move towards shoring up the yen, such as widening the YCC again. Japanese annual June inflation is expected to tick up to 3.3% from 3.2% prior.
To make matters more confusing, the head of the BOJ, Kazuo Ueda, has said some things that appear to be contradictory. There’s a ball of forex yarn here that needs to be untangled to get a better idea of where the yen could be headed in the medium-to-long term.
First, the data
Tomorrow, Japan will publish its trade balance which is expected to see a dramatic reduction in the trade deficit to just ¥46.7B from ¥1.37T reported in May. Japan typically has relatively large fluctuations in its trade statistics, but if the forecast is correct, it would be the smallest deficit since the latter part of 2021. The weakness of the currency (and brief recovery earlier this year) have been a key factor affecting the trade balance, which is an important component for the BOJ’s decision-making.
The shrinking deficit is expected to be because imports are forecast to decline while exports are expected to grow. Part of that dynamic is seen as a result of the weaker yen meaning that exports are priced at a higher value. On the other hand, the shrinking imports are a sign of lack of dynamism in the economy. The erosion of purchasing power from a weaker currency could mean Japanese citizens are buying fewer things. That would be a worrying sign for the BOJ.
What’s the BOJ up to?
Just last Sunday, the Governor of the BOJ admitted that the weakness in the yen was a concern, and that the bank could take measures to address it. He used more technical speech, of course, talking about restoring market pricing. But the takeaway is what mattered for the market reaction. Just two days later, on Tuesday, he appeared to backtrack, saying that the BOJ is committed to easing.
This changing commentary shows the dilemma of the BOJ, which wants to keep easing in order to support the economy. That means not worrying about a weaker yen, because that helps exports. But the weaker yen has contributed to rising inflation, and slowing the economy. So the BOJ would be worried about a weaker yen.
Clearing up the situation
Ueda has repeatedly said that he wants to see inflation “sustainably” rising at the target rate of 2%. Inflation has been higher than that for months now. What he means is that the current bout of high inflation is seen as “temporary”, and the result of non-market driven yen weakness that has raised the cost of imported goods. “Non-market driven” here means things like carry trade and bets that the BOJ won’t intervene as the currency weakens. The BOJ is trying to cajole markets into getting the yen higher without actually having to do anything to strengthen the yen.
If inflation turns around and starts rising, however, the BOJ might have to come to the conclusion that they can’t have their cake and eat it too. That might prompt a move towards shoring up the yen, such as widening the YCC again. Japanese annual June inflation is expected to tick up to 3.3% from 3.2% prior.
Comment:
This trade is stil open and active
relevant market wraps
European Markets Head for Muted Open
European equity markets were headed for a muted open on Thursday as investors braced for the start of the earnings season in the region. Major European firms slated to report earnings today include SAP, EasyJet, Volvo Car, Publicis, ABB and Nokia. Investors also turned cautious after shares of key technology names in the US dropped in post-market trade on disappointing quarterly results. DAX, Stoxx 600 and FTSE 100 futures all fluctuated around the flatline in premarket trade.
Gold Hits 2-Month High on Fed Pause Bets
Japan 10-Year Yield Steadies Around 0.46%
Japan’s 10-year government bond yield steadied around 0.46% as a dovish outlook on Bank of Japan monetary policy kept the benchmark yield below the upper limit of the target range. BOJ Governor Kazuo Ueda recently stated that there was still some distance to sustainably and stably achieve the central bank’s 2% inflation target, indicating the BOJ’s commitment to ultra-easy monetary policy. Last month, the central bank held its short-term interest rate target at -0.1% and that of 10-year bond yields at around 0% by a unanimous vote, in line with expectations. Falling bond yields in other major economies also reduced upward pressure on JGB yields, as easing inflationary pressures raised hopes that the end of the current monetary policy tightening cycle is close.
Japan Raises This Year’s Price View to 2.6% Ahead of BOJ Meet
The Japanese government raised its overall inflation forecast to 2.6% for the current fiscal year ahead of the central bank’s policy decision meeting next week, the Cabinet Office said Thursday. The upward revision from the previous forecast of 1.7% shows stronger-than-expected inflationary pressure. Japan saw that trend holding up even after accounting for government price-relief measures, which the Cabinet Office says shaves 0.5 percentage points off this year’s price reading. For fiscal 2024, the government expects overall inflation to slow to 1.9%.
relevant market wraps
European Markets Head for Muted Open
European equity markets were headed for a muted open on Thursday as investors braced for the start of the earnings season in the region. Major European firms slated to report earnings today include SAP, EasyJet, Volvo Car, Publicis, ABB and Nokia. Investors also turned cautious after shares of key technology names in the US dropped in post-market trade on disappointing quarterly results. DAX, Stoxx 600 and FTSE 100 futures all fluctuated around the flatline in premarket trade.
Gold Hits 2-Month High on Fed Pause Bets
Japan 10-Year Yield Steadies Around 0.46%
Japan’s 10-year government bond yield steadied around 0.46% as a dovish outlook on Bank of Japan monetary policy kept the benchmark yield below the upper limit of the target range. BOJ Governor Kazuo Ueda recently stated that there was still some distance to sustainably and stably achieve the central bank’s 2% inflation target, indicating the BOJ’s commitment to ultra-easy monetary policy. Last month, the central bank held its short-term interest rate target at -0.1% and that of 10-year bond yields at around 0% by a unanimous vote, in line with expectations. Falling bond yields in other major economies also reduced upward pressure on JGB yields, as easing inflationary pressures raised hopes that the end of the current monetary policy tightening cycle is close.
Japan Raises This Year’s Price View to 2.6% Ahead of BOJ Meet
The Japanese government raised its overall inflation forecast to 2.6% for the current fiscal year ahead of the central bank’s policy decision meeting next week, the Cabinet Office said Thursday. The upward revision from the previous forecast of 1.7% shows stronger-than-expected inflationary pressure. Japan saw that trend holding up even after accounting for government price-relief measures, which the Cabinet Office says shaves 0.5 percentage points off this year’s price reading. For fiscal 2024, the government expects overall inflation to slow to 1.9%.
Comment:
TRADE OPEN and active : YEN DOWN! YEN DOWN YEN DOWN!
Comment:
Japan Inflation Rate Below Estimates in JuneJapan Inflation Rate
The annual inflation rate in Japan edged up to 3.3% in June 2023 from 3.2% in May but less than market forecasts of 3.5%. Core inflation also ticked higher to 3.3% in June from 3.2% in May, matching consensus but staying outside the Bank of Japan's 2% target for the 15th month. On a monthly basis, consumer prices rose 0.2% after being flat in May.
Dow Extends Winning Streak, Tech Drag
The Dow Jones closed 163 points higher on Thursday, marking its ninth-straight session of gains and its longest winning streak since September 2017. Meanwhile, the S&P 500 and the Nasdaq lost 0.7% and 2%, respectively dragged by tech shares as latest corporate earnings were in focus. Johnson & Johnson was the top performer and soared around 6% on upbeat revenue and earnings, helping propel the Dow. Travelers added 1.8% higher after beating on revenue but falling short of expectations on earnings. IBM shares were nearly 2.1% higher despite its disappointing revenue. Conversely, Netflix lost 8.4% after the company's revenue missed forecasts. Also, Tesla tumbled 9.7%, its biggest daily percentage drop since April 20 after reporting a drop in its second-quarter gross margins to a four-year low and Elon Musk hinted at more price cuts. Blackstone moved 0.7% lower after a 39% drop in earnings and American Airlines sank 6.2% despite raising its earnings outlook for 2023.
The annual inflation rate in Japan edged up to 3.3% in June 2023 from 3.2% in May but less than market forecasts of 3.5%. Core inflation also ticked higher to 3.3% in June from 3.2% in May, matching consensus but staying outside the Bank of Japan's 2% target for the 15th month. On a monthly basis, consumer prices rose 0.2% after being flat in May.
Dow Extends Winning Streak, Tech Drag
The Dow Jones closed 163 points higher on Thursday, marking its ninth-straight session of gains and its longest winning streak since September 2017. Meanwhile, the S&P 500 and the Nasdaq lost 0.7% and 2%, respectively dragged by tech shares as latest corporate earnings were in focus. Johnson & Johnson was the top performer and soared around 6% on upbeat revenue and earnings, helping propel the Dow. Travelers added 1.8% higher after beating on revenue but falling short of expectations on earnings. IBM shares were nearly 2.1% higher despite its disappointing revenue. Conversely, Netflix lost 8.4% after the company's revenue missed forecasts. Also, Tesla tumbled 9.7%, its biggest daily percentage drop since April 20 after reporting a drop in its second-quarter gross margins to a four-year low and Elon Musk hinted at more price cuts. Blackstone moved 0.7% lower after a 39% drop in earnings and American Airlines sank 6.2% despite raising its earnings outlook for 2023.
Comment:
Trade is open
Comment:
Positive Impacts of Weak Japanese Yen:
Japanese Exports: A weak yen can boost Japanese exports by making them more price competitive in international markets. It makes Japanese goods relatively cheaper for foreign buyers, potentially increasing demand and stimulating export-oriented industries.
Tourism: A weak yen can attract more international tourists to Japan, as their foreign currencies can have greater purchasing power in the country. This can benefit the tourism industry and generate foreign exchange earnings.
Overseas Investments: A weak yen can encourage Japanese businesses and investors to seek opportunities abroad. It makes overseas investments relatively cheaper in terms of yen, potentially promoting outward foreign direct investment (FDI) and diversifying business activities.
Negative Impacts of Weak Japanese Yen:
Imported Inflation: A weak yen increases the cost of importing goods and raw materials, potentially leading to higher inflation. This can impact the purchasing power of Japanese consumers and erode their standard of living.
Energy Imports: Japan is heavily reliant on energy imports, particularly oil and natural gas. A weak yen increases the cost of energy imports, which can have adverse effects on energy-intensive industries and contribute to higher production costs.
Consumer Electronics: Japan is known for its consumer electronics industry. A weak yen can increase the cost of importing electronic components and materials, potentially affecting the competitiveness and profitability of Japanese electronic manufacturers.
Positive Impacts of Strong Japanese Yen:
Imported Goods: A strong yen makes imported goods relatively cheaper, benefiting Japanese consumers and potentially increasing their purchasing power.
Energy Costs: A strong yen reduces the cost of energy imports, which can benefit energy-intensive industries and help control production costs.
Travel and Education Abroad: A strong yen can make international travel and education abroad more affordable for Japanese citizens, potentially boosting outbound tourism and educational opportunities.
Negative Impacts of Strong Japanese Yen:
Japanese Exports: A strong yen can make Japanese exports relatively more expensive in international markets, potentially reducing their competitiveness and impacting export-oriented industries.
Tourism: A strong yen can make Japan relatively more expensive for international tourists, potentially affecting the tourism industry and reducing foreign exchange earnings.
Inflation and Deflation Concerns: A strong yen can exacerbate deflationary pressures in the Japanese economy, as it makes imported goods cheaper and can lead to lower domestic prices. This can hinder economic growth and pose challenges for policymakers.
It's important to note that the impact of currency strength or weakness on a country's economy can vary depending on various factors, including the country's economic structure, trade dynamics, fiscal policies, and global market conditions. The effects on specific countries or regions can also depend on their trade relationships, exchange rate policies, and economic interdependencies with Japan.