Today's FX Comment

Today’s FX Comment

Good morning and happy Monday, I hope you had a great weekend. I would say no matter how good your weekend was, Shohei Ohtani might have a had a better one.....On another note, I did manage to stay awake for all of the movie Napoleon on Friday night, the official review: so-so at best.

Outside of USDJPY, the week is starting out on a fairly tame note ahead of US CPI tomorrow and a central bank heavy week that includes the SNB, the ECB, the BOE and of course the Fed (all expected to keep rates steady of course). Overnight, Asian indices were all higher with the exception of the Hang Seng which continues to struggle. The index was actually down a lot more before rebounding on the back of rumored state sponsored buying of Chinese shares. Chinese inflation data was released over the weekend and we should probably rename it deflation data as both CPI and PPI were both not only negative but lower than expected as well. China’s annual Economic Planning meeting is scheduled to take place in the next week or so and it would seem there is plenty of room for stimulus (fiscal and monetary) as clearly inflation is not a problem. You can point and say it is more about services inflation but there is no doubt China has been exporting and will continue to export disinflation to the rest of the world.

European equity markets are little changed for the most part while futures point to a flattish open in North America. I guess the calm before the storm with inflation data tomorrow and the Fed on Wednesday. The Fed's preferred inflation measure is core PCE but the market seems to focus more on the CPI print and at this point I think the inflation data matters a lot more than non-farm payrolls. After all, we have all seen that inflation can in fact fall without having to incur job losses. Tomorrow's headline number is expected to decline a touch to 3.1% and as long as inflation continues to grind lower Fed rate cuts are very much in play in 2024.

FX thoughts:

JPY - The Yen has obviously been the big mover over the last week. First we had the stop out move lower on the back of BOJ Governor Ueda's comments that hinted at a possible end to the BOJ's ZIRP as early as next week. Now USDJPY is re-tracing after those comments have been walked back with reports that the BOJ needs to see more proof of sustainable inflation before a policy shift. I don't think the BOJ goes until they get a clearer picture of how the next round of wage negotiations turns out (unions are looking for 5-7% pay increases) but I do know this: the market is still long USDJPY, US yields have fallen and we are moving toward Fed rate cuts. Feels like you should sell rallies here. Resistance 147.53 (100 day MA).

AUD - The Oz is lower this morning, maybe weighed down by reports that Australia is set to not only triple the fees on foreign purchases of existing homes but to slow down immigration overall (makes Canada look more attractive?). We hear from RBA Governor Bullock tonight, she has leaned more hawkish in her recent speeches, if she keep the prospect of rate hikes on the table the AUD should get a lift. Support .6520.

EUR - Lagarde versus Powell this week and who do you think will cut first, the ECB or the Fed? I say it will be very close. Support right here at 1.0755 followed by 1.0700 resistance 1.0800.

GBP - The BOE is expected to keep rates steady later this week, hoping that the "higher for longer" approach will tame inflation without the need for further hikes. Tomorrow morning we get UK employment data and that will help provide near term direction for Sterling. Support right here at 1.2560, followed by the 1.2450-60 area, resistance 1.2740.

CAD - Clearly it will be all about broader US Dollar moves and overall risk sentiment in the wake of US CPI and the Fed for USDCAD later this week. For the time being the levels remain 1.3625 and 1.3655 on top with support at 1.3517 (200 day MA) followed by 1.3480. I will say this: the Canadian employment data was pretty decent this month and the BOC isn't sounding overly dovish yet keeping the line "prepared to raise the policy rate further if needed" in their latest statement. Positioning also remains a big factor here with the latest IMM data still showing some fairly significant CAD short positions. Topside USDCAD feels a bit limited against that backdrop.

Good luck.

?