Today's FX comment

Today’s FX Comment

Good morning and TGIF. As we head into the weekend markets are capping the week off on a high note with equities a sea of green everywhere. Let's hope stocks can finish strong today. Asian indices were led by gains in the Hang Seng (+2.3%) which rose to a 9 month high overnight and is now 27% off its January low. The property index led the way once again rising after more reports that the government is relaxing restrictions on new property purchases throughout major cities in China. China is also reportedly considering a proposal to waive the 20% tax on dividends from Hong Kong stocks and of course that news gave equities another lift.

European equity markets are all trading higher this morning piggy backing on decent gains in Asia. UK economic data topped expectations today helping sentiment as well. At the end of the day, the European economic data has been better than expected on average and the ECB is likely to cut next month (and maybe the BOE in a few months). Better than expected growth and lower rates make for a healthy backdrop.

Futures point to gains on the open in North America but let's see if all the Fed speakers we have today can spoil it. We have no less than Bowman, Logan, Kashkari (again!) Barr and Goolsbee on tap. It's almost comical how often these folks speak each and every week, it makes me really look forward to the Fed blackout period. I think by now we know the story: the Fed is committed to 2% inflation and while an easing bias remains in place, rates may have to stay higher for longer to bring inflation back to target. Next.

FX thoughts:

JPY - Japan’s Finance Ministry reported that Japan recorded its biggest ever currency surplus of 5.4 trillion Yen this past fiscal year. That's a good thing, the BOJ will need it to intervene. I think the BOJ will intervene when push comes to shove and the central bank will likely bring forward rate hikes as well. I think you maybe look for intervention if the pair gets above the pre-NFP level of 156.30? I prefer to play from the short side via USD Put spreads or layered digital Puts.

AUD - The Australian economy is healthy, the RBA will be one of the last CB's to cut rates, China's economy is looking better, metals prices look good (copper +$14 today) and equities are on a roll. Not a lot reasons to sell the Oz in my opinion. Resistance .6635 and .6675, support .6550.

EUR - The Euro is trading just below resistance at 1.0785 this morning, next topside level is 1.0840. The EU economic data has been improving and the market has three ECB cuts priced in for this year. Hard to see the central bank out-doving those expectations. I think we find buyers on dips between 1.0700-20 now.

GBP - UK economic data was better than expected this morning with the UK on track to exit their technical recession after Q1 GDP topped estimates this morning. Industrial and manufacturing production data were better than expected as well. So we have stronger GDP, still low unemployment, strong wage growth and inflation above target. I'm not sure why the market is pricing in such a high probability of a June rate cut here. Seems very premature given the data, I would take the other side of that bet. Support at 1.2470 followed by 1.2430. Resistance 1.2580 and 1.2640.

CAD - The Canadian Dollar gets the spotlight shortly with the release of the Employment report. As always seems to be the case, estimates are for +20k job growth and the market will be looking for a rebound after last month's softer -2k print. I don't know how today's number will look, but I do know it rarely comes in on expectations. At the end of the day, regardless of today's data, inflation has come in softer three months in a row and CPI ex-shelter (which the BOC has more or less admitted they can't control) is very soft. CPIX, the banks “old” preferred inflation measure already sits at 2%. In the meantime, GDP has flatlined and the unemployment rate has moved up from 4.9% to 6.1% (expected 6.2% today) it is really time for the Bank of Canada to cut rates. I think the Bank goes three times this year and should probably just get going in June. For today it is all about the data. The market is short CAD so the larger reaction will be on the back of a stronger print. Nearby support around 1.3665 but really it is 1.3600-20 that is key on the downside. On top, we should run into offers around 1.3730 followed by 1.3785.

Have a great weekend.

Good luck.

?