The Return Of Carry
The yen selling that began Thursday continued overnight, with the currency taking out key supports on the crosses and yen sell stops being triggered. The move looks like a return to carry more than anything else; the correlation to equity markets holds strong, with the S&P yesterday hitting a fresh record high and the Nasdaq closing up 0.5%, while today the Nikkei put on 0.5% and the Hang Seng 0.77%, while Shanghai ended encouragingly flat. NZDJPY and AUDJPY have been the star performers over the past 24 hours as investors continue to find risk assets attractive. AUDJPY broke 101.00 overnight to reach a new 15-year high while NZDJPY also made new highs, taking out 90.00 level to touch 2% gains in a day. The levels that have yet to go in USDJPY and EURJPY are 122.20 and 164.31 respectively, but given the steady yen selling these look extremely vulnerable. Helping weaken yen sentiment today was a Nikkei report that foreign banks in Japan exported a record Y21.9 trn in the year to March 31. The data will keep Bank of Japan Governor Fukui concerned about the impact of low rates in Japan on broader global financial stability. Buy USDJPY around 121.90,l with a stop below 121.70, targeting 122.50. Similarly, EURJPY is a buy at 163.70-75 with stop below 163.50 for a move up to 164.50. AUDUSD has climbed more than 1% over the past 48 hours, and comparisons are being made with the Canadian dollar, which has been rising steadily against the US dollar since mid-March. While there are similarities between the two in that they both enjoy positive M&A flows and derive support from commodity approciation, there is one very big difference: interest-rate expectations. Before the USDCAD move started, the front end of the Canadian curve was pretty much on par with the US curve, but it has steepened substantially since, and is now 40bp steeper. The Australian vs US curve has shown no signs of such a trend. The Swedish krona strengthened yesterday morning, but then fell back against the euro on back of dovish comments from Riksbank board member Rosenberg. Recent data has been weaker than expected, especially retail sales and Q1 GDP. Options expirations yesterday held EURSEK around 9.30, but stay long the cross with a stop at 9.2750 for a continuation of the uptrend that started Tuesday. Our traders feel that long NOKSEK is becoming attractive again; 1.1430 should be the stop for any short-term trading longs today.
The yen selling that began Thursday continued overnight, with the currency taking out key supports on the crosses and yen sell stops being triggered. The move looks like a return to carry more than anything else; the correlation to equity markets holds strong, with the S&P yesterday hitting a fresh record high and the Nasdaq closing up 0.5%, while today the Nikkei put on 0.5% and the Hang Seng 0.77%, while Shanghai ended encouragingly flat. NZDJPY and AUDJPY have been the star performers over the past 24 hours as investors continue to find risk assets attractive. AUDJPY broke 101.00 overnight to reach a new 15-year high while NZDJPY also made new highs, taking out 90.00 level to touch 2% gains in a day. The levels that have yet to go in USDJPY and EURJPY are 122.20 and 164.31 respectively, but given the steady yen selling these look extremely vulnerable. Helping weaken yen sentiment today was a Nikkei report that foreign banks in Japan exported a record Y21.9 trn in the year to March 31. The data will keep Bank of Japan Governor Fukui concerned about the impact of low rates in Japan on broader global financial stability. Buy USDJPY around 121.90,l with a stop below 121.70, targeting 122.50. Similarly, EURJPY is a buy at 163.70-75 with stop below 163.50 for a move up to 164.50. AUDUSD has climbed more than 1% over the past 48 hours, and comparisons are being made with the Canadian dollar, which has been rising steadily against the US dollar since mid-March. While there are similarities between the two in that they both enjoy positive M&A flows and derive support from commodity approciation, there is one very big difference: interest-rate expectations. Before the USDCAD move started, the front end of the Canadian curve was pretty much on par with the US curve, but it has steepened substantially since, and is now 40bp steeper. The Australian vs US curve has shown no signs of such a trend. The Swedish krona strengthened yesterday morning, but then fell back against the euro on back of dovish comments from Riksbank board member Rosenberg. Recent data has been weaker than expected, especially retail sales and Q1 GDP. Options expirations yesterday held EURSEK around 9.30, but stay long the cross with a stop at 9.2750 for a continuation of the uptrend that started Tuesday. Our traders feel that long NOKSEK is becoming attractive again; 1.1430 should be the stop for any short-term trading longs today.