Today's FX Comment

April 24, 2024?

Good morning, and happy hump day. Looking at equities you would say this a risk on day (so far) but you can't quite call it that as the US Dollar has enjoyed a small bounce overnight after yesterday's PMI driven selloff. Asian equities were in positive territory overnight ex-Australia which ended the session pretty flat after hotter than expected inflation data. The Nikkei, Kospi and Hang Seng were all up over 2% as chip stocks rebounded to lead the way higher. News out of China includes reports that China’s sovereign wealth fund bought at least $43bio of onshore ETFs in Q1 while a PBOC official has been quoted as saying long term treasury yields in China will "operate within a reasonable range that matches long term economic growth expectations", spurring thoughts of potential Chinese QE to stimulate the economy.

European indices are all higher this morning likely given a lift by the bounce we have seen in Tesla after last night's earnings release as well as by German economic sentiment data which came in at its highest level in about a year. I suppose no surprise as ECB rate cut expectations rise, so does sentiment.

Futures point to gains on the open in North America ahead of an event heavy day. We have another large auction scheduled with $70bln of 5 year notes up for grabs (US 5yr yield is up about 3.5 bps this morning and has re-traced a good part of yesterday's post-PMI move) while we have IBM and Meta both after the bell.

FX thoughts: A bit of a strange one so far, the US Dollar rebounding despite decent risk sentiment overnight and stronger data out of Australia and Germany. Maybe chalk it up to some nervousness ahead of today's 5 year supply.

JPY - 154.97 the high overnight as USDJPY continues to grind toward potential FX intervention (and I mean grind, 1 week USDJPY realized vol is running on a 4 handle). At the moment, nothing seems to be able to help the currency, even after yesterday's weaker than expected US PMI release USDJPY barely traded lower. It almost seems that at this point you need a combo of intervention and a BOJ rate hike to turn things but of course the central bank is expected to leave rates unchanged at this week's meeting. Then again, it has been reported that the BOJ will discuss the impact of the Yen depreciation at the policy meeting so you just never know. One LDP party executive said there might not be intervention until 160 or 170, that kind of sounds like a setup to me to get the market even longer so intervention can inflict more damage. I don't think Japan would let things slide that far. I think I would buy some gamma/vol ahead of the BOJ meeting.

AUD - Australian CPI data came in hotter than expected last night with headline at 3.6% and core at 4%. The even larger problem for the RBA, domestic and services inflation both re-accelerated on a quarterly basis. We have been saying for a long time the market had been wrong to be pricing in RBA rate cuts with inflation well above target, a strong housing market and still historically low unemployment. The market seems to agree now with a rate cut all but priced out this year. Yields have jumped, metal prices are rallying and the RBA is a long way from rate cuts or even being able to sound dovish. It feels like the Oz should be trading higher. Resistance .6540.

GBP - UK business optimism data improved this morning and the BOE is another central bank that I think will have a hard time cutting rates. Services inflation and wage growth remain very strong. Support 1.2350, resistance 1.2470.

EUR - Germany's IFO business sentiment data beat on all measures this morning and the ECB's Nagel has pushed back on recent central bank dovishness stating that services inflation remained high driven by continued strong wage growth.? He stressed that the market would not necessarily see a series of rate cuts after June as well. Neither has helped the Euro this morning though as a broader rebound in the US Dollar has driven the currency below 1.0700 again. Support between 1.0600-1.0615, resistance 1.0730 and 1.0785.

CAD - We have Canadian Retail Sales data up shortly and the market is looking for an uninspiring +.1% gain month over month, I suppose it's better than a negative print. The data is from February so it is very stale, the flash estimate for March will matter more but at the end of the day I think the impact will be pretty limited. For the BOC its is all about inflation and needing to see CPI improvement for a bit longer before being “confident” to lower rates (to paraphrase Governor Macklem). We also have the BOC's Summary of Deliberation from its April 10 meeting later today at maybe that provides more insight into a potential June rate cut. I personally think the market should be pricing in a greater probability of a cut in June then it currently is. Support 1.3665 and 1.3620, resistance 1.3760.

Good luck.

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