YEN AGAIN - USDJPY is certainly starting to move a bit, with the major pair breaking above 120.00 in Wednesday trade to close in on a retest of the all important 7 year high from December at 121.85. While I continue to like the upside in this market and project it higher towards 125.00 over the medium-term, I am concerned that with so much uncertainty abound and with US equities still at risk for a major pullback, the traditional correlation with risk will not be entirely lost on the Yen and we could still see a period of USDJPY weakness. I would even consider the possibility of a short-term short position on a highly overextended intraday move, but have no such position just yet.
BACK TO THE FED - But the important thing is volatility is picking back up and opportunities are sure to come our way over the coming days. It looks like the Dollar is trying to reassert, and if this is the case, we could see the Euro back down retesting the recent 11 year low at 1.1098 sooner than later. My view of the US Dollar on the whole is highly constructive. However, just as with the Yen, and perhaps even a bit more here, I believe we could soon be in for a longer period of USD weakness. My view originates in the fact that the Fed may not actually hike rates mid-year like many are pricing. I am concerned that even with employment improving and wage growth picking up, the cautious Fed still has to contend with low inflation, discouraging growth, and external pressures of central bank ultra accommodation abroad.
RETAIL SALES - So for me, the key right now is to watch today's retail sales number out of the US. I'm thinking that if this data disappoints, it could really change things up for the market. A softer print will highlight previous softness in the data series along with other weakness in the US economy as highlighted by abysmal durable goods. This will in turn likely push back Fed expectations and should ultimately weigh more heavily on the Buck. If however, the data comes in strong, we could see more acceleration in the Buck before it bottoms. Let's wait and see. But I am definitely feeling some good trades ahead. Stand by.