Today's FX Comment

May 9 , 2024?

Good morning. As you might know, I am a Pittsburgh Steelers fan, that automatically makes me no fan of Tom Brady (10-2 record versus Pittsburgh including 3-0 versus the Steelers in AFC Championship games - not like I'm keeping track) but I saw his Netflix roast special the other day and thought I would give it a look. If you are a fan of Brady, or football or comedy, it is worth a watch but warning: very, how shall I say it, politically incorrect. Do not watch with the kids thinking it is a heart warming tale of what it takes to be a champion....

Overnight, Asian indices were mixed with shares in Hong Kong and mainland China outperforming. Country Garden (remember that name) said it could not meet a Yuan bond interest payment and reportedly asked China's State Guarantor to pay on their behalf. That was mostly ignored though as the market chose to focus more on news that Hangzhou city has removed all residential property purchase restrictions in an effort to prop up the housing market. The property sector ended up leading gains overnight. China's trade data was decent as well with exports up by a greater than expected 1.5% while imports also jumped more than expected and were up 8.4% YoY, Maybe China's economy is slowly turning the corner and starting to move higher.

European equity markets are flat to higher this morning perhaps supported by the thought of central bank rate cuts becoming more of a reality (Sweden this week, ECB next month, BOE edging closer?). Futures point to a slightly lower open in North America ahead of a very light data day. We do have a 30 year bond auction to look forward to this afternoon and thankfully the Fed speaker schedule looks light today.

FX thoughts:

JPY - USDJPY continues to grind higher retracing a good part of its post-NFP move. More jawboning from Kanda and Suzuki about intervention if/when necessary has not helped the Yen, nor has a more hawkish sounding BOJ Governor Ueda who noted that "compared to the past, exchange rate developments are more likely to affect prices”. The BOJ will have to intervene, the BOJ will have to hike and Japan will have to implement those talked about policies to encourage repatriation and currency support to stem losses in the Yen. Weaker US CPI next week would really help. I suppose you have to look for intervention if the pair gets above the just prior to NFP level of 156.30?

AUD - Employment remains solid as does wage growth, housing is at the highs and inflation is above target. The RBA played rate hikes slow and now they will end up being one of the last CB's to cut rates. An improving Chinese economy helps as well. I like buying dips in the Oz. Resistance .6635 and .6675, support .6550.

EUR - I think we find bids ahead of 1.0700, resistance 1.0785. The EU data has been turning higher and I think it will be hard for the ECB to be more dovish than what the market already has priced in.

GBP - Cable has worked its way back to pretty much where it was pre-BOE. The central bank left rates unchanged as expected, the vote was 7-2 so a little more dovish than last time but not totally unexpected either. I still think it is way too early to even be thinking about a June rate cut (and I don't expect one), two more CPI reports to look at in between now and then, best for the BOE to retain flexibility. We are right near support at 1.2470, next downside level is 1.2430. Resistance 1.2580 and 1.2638 (100 day MA).

CAD - Support 1.3665, resistance 1.3785 and it is all about CAD employment tomorrow. Given the market is long USDCAD (CFTC data shows non-commercial short CAD positions remain near their largest level in the last several years) it feels like the more pronounced reaction would be on the back of a stronger print. That being said we have looked back at the last 10 years' worth of May Canadian employment releases and found lower than expected data 7 out of the last 10 times (as always past performance does not indicate future return).

BOC Governor Macklem and Deputy Governor Rogers speak today after the release of the Bank's Financial Stability Report so watch for headlines there (approx. 11am ET). Overnight ATM vol is dealing on a 6 handle this morning, implying a breakeven of approx. 38 CAD pips on a straddle, way too cheap in my opinion, it should be bought up.

Good luck.