Today's FX Comment

March 27, 2024?

Good morning and happy hump day. The Toronto Maple Leafs had 45 shots on goal last night and still ended up on the wrong side of a 6-3 score. New Jersey Devils goalie Jake Allen stood on his head and my only question: why couldn't he play like that when he was on the Montreal Canadiens...

Today is starting out a lot like yesterday, stocks are trading mostly higher. We'll see if equities can hang on to their gains today. Overnight, Asian indices were mixed with the Nikkei climbing again while the Hang Seng and stocks in mainland China were under pressure. The PBOC continues to keep a lid on USDCNY fixing the pair below 7.1000 again while President Xi spoke and said he sees the economy as healthy and stable and believes that China-US relations can have a better future. I guess what else could he say with several US CEOs in the middle of a visit to China.

European equity markets are mostly higher this morning with sentiment perhaps given a lift by a combo of tame Spanish inflation and an ECB that sounds more and more like they are cementing a June rate cut with the ECB's Kazak (normally leans hawkish) commenting that he did not object to the market view of June rate cut. Futures point to gains on the open in North America but then again they did yesterday at this time as well. We'll see where things close. Until Friday's PCE data/Powell appearance it remains all abut month end/quarter end flow.

FX thoughts:

JPY - USD/JPY traded at its highest level since 1990 overnight touching 151.97 before coming off after Finance Minister Suzuki reiterated he was closely watching FX moves with a high sense of urgency adding he would not rule out "decisive steps". The market paid particular attention as Suzuki used the "decisive steps" line back in 2022 when Japanese officials last intervened in the FX market. I think we get it, 152 looks like a line in the sand for Japanese officials and as we noted yesterday, the market may want to push to trigger intervention but the UST-JGB 10 year yield spread points to a lower USDJPY (in my opinion) and why get caught long up here when intervention is a real possibility. Support at 150.10. Vol looks cheap and is a great way to initiate a short USDJPY position. A 2 month 149/144 USD Put spread costs about 125 JPY pips.

AUD - Stocks are higher, normally that means the Oz should be as well but not today. We'll chalk it up to month end flow and iron ore which remains under pressure. I think the market has it wrong pricing in almost two RBA rate cuts this year.? Support ahead of .6500, resistance .6580 and .6630.

EUR - All signs point to a June rate cut with various ECB members doing little to push back on market expectations this week. Remember when we all thought Europe was headed for stagflation? Rate cuts on the back of tamer inflation are a good thing. In the meantime, the EU economic surprise index remains near its highest level in almost a year. We should see continued support around 1.0800 with resistance at 1.0875 and 1.0980.

GBP - No change here. Hard for me to see the BOE aggressively cutting with 6% wage growth and inflation a long way from target. Cable has been running into resistance around the bottom of the old 1.2650-1.2740 range. Next support 1.2580.

CAD - Western select crude is up about 10% over the last couple of weeks, stocks are enjoying a decent month (TSX +2.5%, SPX +2% MTD), the CAD/US two year yield spread has moved about 7 bps in CAD's favour this week and even though we know a BOC rate cut is likely coming in June the central bank doesn't seem quite ready to admit it yet. Add in the fact that we have tested the 1.3600-20 area no less then 20 times since last November and have failed repeatedly and I don't think getting caught long USDCAD up here is a great idea. Options are pretty inexpensive, a three week 1.3600 USD put costs about 64 CAD pips.

Good luck.

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