View from London: USD/JPY the Risk Barometer Again
07/19/2017 2:51 am EST
There are times when quiet markets are a pleasure. This doesn’t appear to be one of them—prepare for more noise, writes Bob Savage, CEO of Track Research in Wednesday commentary from London.
With a light news calendar, with BIG event risks around the BOJ/ECB meetings where most expect at least some change in outlooks for future rate policy and with markets already overextended in selling USD, stretching for yields and buying EM-all that makes the present quiet more pensive than calm.
Like driving a group of tired teenagers the energy potential for noise is far higher than the range of the automobile and those precious moments of silence. So too, today, the risk for more explosive moves across macro markets seems likely, but not without refueling-seen as the central bank forward guidance due tomorrow from Japan and Europe (EUR/USD).
There are clear risks-as the Nikkei news reported that two key advisors to Abe pushed for him not to renew BOJ Governor Kuroda in March 2018.
Also in the news was the push back from China on the talks in Washington today-warning against North Korea as a stick to discussions on trade deals.
The US TIC data late yesterday highlights the importance as both Japan and China bought treasuries with China up $10bn in May. The price action suggests that trends that started in July are holding-Australian dollar (AUD/USD) rallied further to 2-year highs tracking iron ore surge.
New Zealand dollar (NZD/USD) is at 8-month highs tracking milk price increases. There is a contrast here against the Japanese yen (JPY/USD) as the market is still confused about the better growth theme against the higher rate fear-higher real growth merits higher real rates-but there is clearly less enthusiasm for doing much of anything today until we know more from central bankers-this makes USD/JPY the risk barometer again and should put 111.50 as a wake-up buzzer for those stuck in 2Q earnings reports.
There are times when quiet markets are a pleasure, this doesn't appear to be one of them-prepare for more noise.