More Than a One Trick Pony

  • Currencies moving on multiple drivers
  • ECB decision comes in spotlight
  • Market gets pre-NFP tease with Thursday jobs data
  • Yen an interesting currency to watch right now

REFRESHING - It's definitely refreshing to see markets moving on currency specific themes, rather than the same old everything moving on one theme price action. For the most part, it has come down to the Fed and what the Fed is going to do. So onto Thursday when you have the Euro focused on the ECB, Pound worried about the referendum, Yen thinking twice about negative interest rate policy, Aussie sucking up retail sales and trade, Kiwi weighing out the latest GDT auction and Canadian Dollar contemplating today's OPEC chatter, there is hope that financial markets could once again be more than just a one trick pony. 

ECB POLICY - Of course, everything still does come down to the Fed outlook. But at least there are signs of each currency being distracted with unique, country (region) specific themes. For today, the focus will be on the ECB decision, Draghi presser and whether or not we see any changes to the ECB's forecasts. There has been talk of potential upward revisions to growth and inflation which would support the Euro, though at this point, we will have to wait and see. 

US LABOR MARKET - Another focus in Thursday trade will be on US employment data, in the form of ADP employment and initial jobless claims. Clearly with the Fed signaling a rate hike in June or July, the importance of economic data takes on added meaning, with any weakness on this front to possibly give the Fed an excuse to once again hold off. The Fed has been very focused on the labor market and so, today's readings will shed further light on the Fed's timeline. But the market also won't get too ahead of itself today, with US NFPs on the horizon. 

THE YEN - Strategically, the most interesting price action or potential price action could revolve around USDJPY. While there are so many reasons to argue against USDJPY correlating with risk appetite, the fact remains that the major pair still does correlate with risk. And so, with US equities trading just off record highs and still in desperate need of a major pullback, particularly in light of recent Fed signals, it would stand to reason that a drop in US equities could very well open another big drop in USDJPY.

$USDJPY could still trade down to 100 if US equities turn lower. Via @joelkruger

STRATEGY - So I wouldn't rule out the possibility of a retest and break of 105.55, at which point, we could then see an acceleration to 100.00. Of course, I don't believe in the sustainability of the USDJPY correlation with risk, and at that point, should we test 100, I would be an aggressive buyer of USDJPY. Simply put, the Yen is a funding currency and not a safe haven currency. Japanese fundamentals not only are not even supportive of a stronger currency but also demand that the Yen trade lower on the export value of a weaker exchange rate. So maybe we get one more USDJPY drop on equity weakness, but don't expect this drop to take USDJPY much lower than 100.00. 

Friday Position Review

Looking at the current exposure as we head into the weekend.


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