SAXO bank Daily FX report

[Mr. JOD]

MAJOR HEADLINES – PREVIOUS SESSION


Paulson in China
Paulson speaking on CNBC ahead of US China meetings today. Says China needs to be more flexible over time. Nothing new.
Paulson emphasizes that dialogue about more than just currency, want to open China's markets. Again, this is standard stuff: citing need for more progress while also trying to emphasize the broader relationship.
Paulson says "some people will never be satisfied with China" - pushing back against Congressional pressure. Says would like to see the pace of reform move quicker in China, risk is greater in moving slower.
EURJPY and USDJPY responses by keeping vols low and letting the carry slowly continuing to grind higher.
Riksbank comments
Rosenberg says unemployment slightly lower, wage rises slightly higher than assumed in February. Says inflation still low, need to balance pace of rate hikes so that inflation doesn't speed up nor growth slow.
Rosenberg is re-iterating the comments on the labour market that appeared in the statement to the May meeting and the minutes. The implication is that rates will rise in June, but only gradually thereafter. She is re-iterating comments on labour market that appeared in the statement to the May meeting and the minutes. These basicly say that labour market is a bit tighter than expected - but that there is uncertainty arround amount of reserve labour.
EURSEK heading lower through Europe and looks to test the daily 200 day MA presently at 9.1840 a break below would give scope for a test of the lows from April at 9.1200



Quoted at 14:45 CET.

News from yesterday:

CAD

The Canadian dollar has been the cross to follow this week, with data continuing to impress with both headline and core inflation coming in above estimates. But still next week's BoC rate decision should should be a non-event as consensus at 4.25% looks to be the only rational outcome. But with core CPI running now at 2.5% and an unemployment rate running at 6.1% a further strength in either of these could put a rather dovish BoC in an uncomfortable position where rate speculation will once again become a factor. Also the recent rally in crude oil prices has helped support the currency and it looks as if the $55-$60 level looks to be the bottom looking 3-6 months ahead. So in the short term we see no reason to why the CAD should not continue to strengthen from a fundamental standpoint, but we will of course be cautious as the deterioration of the US economy further out could put a dampening factor on Canadian economy.

From a technically standpoint the trends in both USDCAD and CADJPY remains strong. The break above 109.05 consolidation pattern in CADJPY on a daily basis gives scope for a test of 112.20 50% Fibonacci projection from the most recent wave. USDCAD broke below 1.1000 gives scope for a test of the 2006 lows at 1.0930 with a break giving scope for further downside acceleration.

USD

The dollar has rallied in late part of this week. It started off on a soft note as the NAHB Housing Market Index for May showed a decrease from 33 to 30 which is the lowest reading since June 2006 giving investors a doze of reality to the vulnerability of the US housing market and that a bottom fishing in this area should not be tried. But yesterday's claims showed a remarkable fourth consecutive decline pushing EURUSD below 1.3500 support as market is starting to price in, much stronger payrolls then the 88K we saw in April. But once again we will be cautious as we think this will be a perfect opportunity to enter long US 2 years. The yield is presently at 4.92% and if we see yields towards 5.05-15% we see it a as a perfect entry point. We do not expect the housing market to show any sign of health over the next 6-12 months giving very little reason to believe the short end of the curve should remain this bid, despite labor markets being tight in the US. Core inflation has decreased looking on a QoQ basis and we look for this to continue supporting our trading tactics towards US treasuries.

From the technically side we have chosen to look at USDJPY and EURUSD as they seem very close to crossroads in the short run. EURUSD trading close to 1.3460 key support where break would technically open up for a sharp sell-off towards 1.3260 50% retracement from the most recent wave. On USDJPY the pair remains toppish unless a daily close is seen above 122.19 which would technically open up for 125.00.

JPY

Investors still seems to have no concern sending carry trades higher. We think the main cause for such a case is the fact that volatility is at historical lows in USD/Majors across the board. On top of that the rate differential expectation just isn't there at the moment. We certainly feel that the high yielder's such as AUD, NZD and GBP have seen their peaks in yields from their respective central banks. But the problem arises from BoJ which does not seem to be busy showing continuity in sending yields higher. And the fact remains that the message from Japan remains mixed. Fukui continues to tell news wires that negative CPI reading does not necessarily mean no hikes, but on the other side of the fence is Japanese officials who have been on the wires more then once looking back over the past few weeks saying that Japan is not ready for more hikes in the short term. So we see two major risks going into Q3. Japan will pick up the pace and fundamental data will support this or the US housing market will continue to deteriorate.....either way we think carry trades will take a huge hit before year end, which in our mind should be played through option risk reversals on 6-12 basis.

[Abo Osamah]

شكرآ لكم ... هل يوجد رابط للتقرير؟

[Mr. JOD]

شكرآ لكم ... هل يوجد رابط للتقرير؟

أخي الكريم التقرير يوصلني يوميا على الإيميل ..
تقبل مودتي ..

[Mr. JOD]

BoE Minuted Unanimous for a Rate Hike in May.

Market participants speculated in whether or not the BoE minutes would show a unanimous vote, which was the reason for GBP-related crosses dipped early in the trading session.


MAJOR HEADLINES – PREVIOUS SESSION




GBP

Focus was on the BoE Minutes from May, released at 10:30CET. Ahead of the Minutes, market speculation was if we would get a unaimous vote or if votes were split. Our view is that is a split was seen, GBP-crosses would go even lower, as it has been fragile since the the strong CPI in April. As the situation is now, we think that the MPC still are still aiming for higher rates and a quarter point in June is in our view more or less for certain. Overall, the minutes were in line with the Inflation Report, and suggest that the risks to inflation are percieved to be on the upside on the medium term. GBPUSD broke 38% fibo resistance (1.9621-2.013) at 1.9780 and is currently trading at 1.9846. We will focus on the GDP on Friday for more direction.

NZD

Watch the NZDUSD if we see a clear break of the 55 day MA, the lows of today. We will tune in on the trade balance for direction.







Quoted at 13:15CET.

News from previous sessions:

Paulson in China
Paulson speaking on CNBC ahead of US China meetings today. Says China needs to be more flexible over time. Nothing new.
Paulson emphasizes that dialogue about more than just currency, want to open China's markets. Again, this is standard stuff: citing need for more progress while also trying to emphasize the broader relationship.
Paulson says "some people will never be satisfied with China" - pushing back against Congressional pressure. Says would like to see the pace of reform move quicker in China, risk is greater in moving slower.
EURJPY and USDJPY responses by keeping vols low and letting the carry slowly continuing to grind higher.

Riksbank comments

Rosenberg says unemployment slightly lower, wage rises slightly higher than assumed in February. Says inflation still low, need to balance pace of rate hikes so that inflation doesn't speed up nor growth slow.
Rosenberg is re-iterating the comments on the labour market that appeared in the statement to the May meeting and the minutes. The implication is that rates will rise in June, but only gradually thereafter. She is re-iterating comments on labour market that appeared in the statement to the May meeting and the minutes. These basicly say that labour market is a bit tighter than expected - but that there is uncertainty arround amount of reserve labour.
EURSEK heading lower through Europe and looks to test the daily 200 day MA presently at 9.1840 a break below would give scope for a test of the lows from April at 9.1200

CAD

The Canadian dollar has been the cross to follow this week, with data continuing to impress with both headline and core inflation coming in above estimates. But still next week's BoC rate decision should should be a non-event as consensus at 4.25% looks to be the only rational outcome. But with core CPI running now at 2.5% and an unemployment rate running at 6.1% a further strength in either of these could put a rather dovish BoC in an uncomfortable position where rate speculation will once again become a factor. Also the recent rally in crude oil prices has helped support the currency and it looks as if the $55-$60 level looks to be the bottom looking 3-6 months ahead. So in the short term we see no reason to why the CAD should not continue to strengthen from a fundamental standpoint, but we will of course be cautious as the deterioration of the US economy further out could put a dampening factor on Canadian economy.

From a technically standpoint the trends in both USDCAD and CADJPY remains strong. The break above 109.05 consolidation pattern in CADJPY on a daily basis gives scope for a test of 112.20 50% Fibonacci projection from the most recent wave. USDCAD broke below 1.1000 gives scope for a test of the 2006 lows at 1.0930 with a break giving scope for further downside acceleration.

USD

The dollar has rallied in late part of this week. It started off on a soft note as the NAHB Housing Market Index for May showed a decrease from 33 to 30 which is the lowest reading since June 2006 giving investors a doze of reality to the vulnerability of the US housing market and that a bottom fishing in this area should not be tried. But yesterday's claims showed a remarkable fourth consecutive decline pushing EURUSD below 1.3500 support as market is starting to price in, much stronger payrolls then the 88K we saw in April. But once again we will be cautious as we think this will be a perfect opportunity to enter long US 2 years. The yield is presently at 4.92% and if we see yields towards 5.05-15% we see it a as a perfect entry point. We do not expect the housing market to show any sign of health over the next 6-12 months giving very little reason to believe the short end of the curve should remain this bid, despite labor markets being tight in the US. Core inflation has decreased looking on a QoQ basis and we look for this to continue supporting our trading tactics towards US treasuries.

From the technically side we have chosen to look at USDJPY and EURUSD as they seem very close to crossroads in the short run. EURUSD trading close to 1.3460 key support where break would technically open up for a sharp sell-off towards 1.3260 50% retracement from the most recent wave. On USDJPY the pair remains toppish unless a daily close is seen above 122.19 which would technically open up for 125.00.

JPY

Investors still seems to have no concern sending carry trades higher. We think the main cause for such a case is the fact that volatility is at historical lows in USD/Majors across the board. On top of that the rate differential expectation just isn't there at the moment. We certainly feel that the high yielder's such as AUD, NZD and GBP have seen their peaks in yields from their respective central banks. But the problem arises from BoJ which does not seem to be busy showing continuity in sending yields higher. And the fact remains that the message from Japan remains mixed. Fukui continues to tell news wires that negative CPI reading does not necessarily mean no hikes, but on the other side of the fence is Japanese officials who have been on the wires more then once looking back over the past few weeks saying that Japan is not ready for more hikes in the short term. So we see two major risks going into Q3. Japan will pick up the pace and fundamental data will support this or the US housing market will continue to deteriorate.....either way we think carry trades will take a huge hit before year end, which in our mind should be played through option risk reversals on 6-12 basis.

FX Orderbook

[Mr. JOD]

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