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Ueda's Comments Knock the Yen Back, while the Euro Flirts with $1.08

Started by PocketOption, Apr 03, 2024, 05:41 am

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Ueda's Comments Knock the Yen Back, while the Euro Flirts with $1.08

Overview: The US dollar is mixed today. The
dollar-bloc currencies and the Scandis are enjoying a slightly firmer tone, while the
euro and sterling are edging higher in European turnover. The Swiss franc is softer, and the yen
has given back most of yesterday's gains after BOJ Governor Ueda acknowledged
that central bank seeks further confirmation that sustainable price goal is
within reach. We see it as a further signal of an April move on rates rather
than this month. Emerging market currencies are mostly lower but for a few
Asian currencies. The Dollar index is up about 0.25% this week coming into the
North American session. It fell by around 0.35% last week. 

Asia Pacific equities rallied today. South Korea and Taiwan were exceptions. Europe's Stoxx is
up around 0.20% in the European morning. It must rise by another 0.25% or end a
five-week rally. US index futures are trading with a softer bias. The Nasdaq is
up 0.6% this week and the S&P 500 is up 0.15% before today's session. European
10-year bond yields are firmer, especially in the periphery, but the benchmarks
are 1-3 bp lower on the week. The 10-year US Treasury yield is off two basis
point to 4.23%. It finished last week near 4.28%. Gold is firmer as its advance
extends into the third consecutive session. The yellow metal is trading above
$2050. It has not closed above there since February 1, when it reached $2065. April WTI is firm above
$79. The high for the year was set on Wednesday near $79.60. Near $79.20, April
WTI is up 3.5% this week.

Asia Pacific

While some
central banks, like the Federal Reserve, say they are data dependent, the Bank
of Japan seems less so. 
The core CPI, which the BOJ targets
fell to 2.0% last month and looks poised to fall below it this month. The
economy has contracted for the past two quarters, and there is a real risk it
is continuing to shrink this quarter. Yet, BOJ officials appear determined to
finally exit is negative policy rate. It strikes us that officials view the
negative interest rate policy as having reached a point where the costs
outweigh the benefits. It is more of a technocratic decision than a view of the
economic outlook. Comments by BOJ Governor Ueda at the G20 finance ministers
meeting suggested a move in March, speculation of which helped the yen trade
higher yesterday, was unlikely. The yen returned toward its recent lows after
Ueda's comments were published. We continue to see April as a likely timeframe.
The results of the spring wage round will be known (March 15), and the
government's electricity and gas subsidies are scheduled to end, which will
lift headline inflation.

February PMI were little changed from January. 
manufacturing PMI stands at 49.1, down from 49.2 in January. The low reading
last year was in May at 48.8. The non-manufacturing PMI rose to 51.4 from 50.7.
It is the third month of improvement. It was last above there in September 2023
(51.7). The composite PMI stands was unchanged at 50.9. It was at 56.4 last February.
The Caixin manufacturing PMI has fared better than the "official"
one. It edged up to 50.9 from 50.8. Next week's meeting of the National
People's Congress and the 
Chinese People's Political and Consultative
Conference are important events. The official growth target (which seems like
an input rather than an output) is expected to be announced (5%?). Personnel
changes are expected and although some platitudes about the private sector may
be announced, the Communist Party continues to broaden its presence and Xi know
no rival. 

The yen had
an outsized reaction to the BOJ board members comments about inflation and
expectations reaching a critical point.
Ueda's comments unwound most of the
yen's gains, but the swaps market is a different story. Yesterday, the swaps
market showed none of the drama of the spot fx market. The overnight index swap
for the meeting later this month rose by half of a basis point to 2.6 bps. It
rose by another half of a basis point today to 3.1 bp. The peak in January and
February was 35 bp. The OIS for April rose 3/10 of a basis point to 8.4 bp
yesterday, but slipped slightly to 7.8 bp today, where is also settled last
week. Japan's two-year yield is the highest since 2011, but it only rose by
about 8/10 of a basis point to almost 18 bp yesterday and another basis point
today to finish the week at 19 bp. That is a3.5 bp increase on the week. The
dollar found support in the North American morning near JPY149.20, the lowest
since February 12, the day before the US CPI was reported. It recovered to
closed slightly above the 20-day moving average (JPY149.20). The dollar reached
almost JPY150.70 in the European morning. A close below JPY150.50 is needed to
snap the dollar's eight-week advance against the yen. That matches the longest
rally since November-December 2013. With rate expectations converging with the
Fed's Q4 23 views and our expectation of generally softer economic data, the 50
bp rise in the US 10-year yield, which the exchange rate appears to track, may
have run its course. This may reinforce the cap in the JPY151-JPY152

The Australian dollar stabilized yesterday after Wednesday's
drubbing, but it still looks vulnerable. 
The five- and 20-day moving
averages have turned down and the Aussie failed to close aback above $0.6500,
though it is straddling the area today, having reached almost $0.6515 in late
Asia Pacific turnover. The daily momentum indicators are turning lower. A
three-week rally is ending, and the Aussie has fallen more this week (~0.90%)
than it had risen in the previous three weeks. The Chinese yuan
continues to appear to track the yen.
The yen's recovery yesterday saw the
yuan trade at five-day highs, and its reversal today, has seen the greenback
return to the CNY7.20 area that marks the cap. The PBOC set the dollar
reference rate at CNY7.1059 (CNY7.1036 yesterday). The average of Bloomberg's
survey was CNY7.1978 (CNY7.1935). The dollar settled last week near CNY7.1965.
It has risen in all but one week here in 2024.


The eurozone's
preliminary February CPI estimate stands at 2.6%, down from 2.8% in
The core rate is at 3.1%, down from 3.3% in January and is the
lowest in two years. The 0.6% monthly rise in the headline rate brings the
three-month annualized rate to about 1.6% and the six-month annualized rate to
almost 0.5% (no typo). The European Central Bank meets next week. It is still
too early to look for a rate cut, but the economic forecasts will be updated.
This year's CPI forecast of 2.7% seems high as does the growth projection

The week ahead
continues to see a light calendar of market-moving high frequency British
economic data. 
The highlight next week is the Spring Budget, which is widely
expected to include some tax cuts as the Tories prepare for an election, seen
later this year. There has been speculation of a cut in the tax for the
National Health Services and a small cut in basic income tax rate. However,
personal allowances have been frozen since 2021, an un-freezing them would have
greater impact than a small tax cut. Some reports suggest the fuel tax duty
that is scheduled to be increased next month could be canceled and paid for by
extending the windfall tax on oil and gas companies (due to expire in March
2028). Separately, the final manufacturing PMI readings for Germany and France
were slightly between the than initial estimates, but at 42.5 and 47.1
respectively, there is little encouraging news here. Spain is more promising
with a 51.5 read, its best since June 2022. Italy's manufacturing PMI stands at
48.7 up from 48.5 in January. Note that the UK's manufacturing PMI final
reading rose to 47.5 (from 47.1 preliminary reading and 47.0 in January). 

The euro made
a marginal new six-day low but continues to hold above important technical
support near $1.0790. 
The market does not appear done trying. The bounce
after the low early in the North American afternoon yesterday stalled near
$1.0810 and today's bounce fizzled slightly above $1.0820. It is difficult to
imagine a euro-bullish message from the ECB next week. Although intermittent
support may be seen around $1.0770, on a breakdown, there is little to stand in
the way of the test on the February low slightly below $1.07. In recent
days, sterling probed the middle of the old trading range near $1.27 but failed
to close above it. 
Yesterday, it settled on its lows and below the
20-day moving average. It reached about $1.2640 today in late Asia Pacific
turnover before being sold to session lows in early European activity a little
below $1.2620. The trendline connecting the two February lows comes in near
$1.2565 today, slightly below the 200-day moving average (~$1.2575). 


Economists do
a good job interpolating the PCE deflators after the CPI and PPI are in
And indeed, they matched the median forecast in Bloomberg's
survey. The surprise was the 1% jump in personal income. The median forecast
was for a 0.4% gain and instead it came in at 1.0%. We often think of income
being driven by wages and salaries. In January, dividends seemed to account for
about a third of the increase in income, and the increase in Social Security
payments (cost-of-living adjustment) was worth about 20% of the increase.

There are two
type of US data that will be reported today. 
The first are
surveys. They include in the final manufacturing PMI, the manufacturing ISM,
the KC Fed's Services Activity, and the final February University of Michigan
consumer survey. Second are the real sector reports. There two: January
construction spending and auto sales. Construction spending rose by an average
of 1.1% in 2023. As part of the general slowing of US growth, construction
spending will also likely moderate. The median forecast in Bloomberg's survey
is for a 0.2% gain after a 2.2% rise in January 2023. If the median forecast is
accurate, it would be the weakest January reading since 2017 (when construction
spending fell by 1.2%). Note that the data is sufficiently important as to
prompt the Atlanta Fed to update its GDP tracker after doing so yesterday (3.0%
vs. 3.2% previously for Q1 24). The Atlanta Fed will update its tracker before
the vehicle sales are known. Vehicle sales fell 5.2% in January to a 15 mln
unit seasonally adjusted annual pace. The median forecast in Bloomberg's survey
calls for about a 2.5% increase to 15.4 mln vehicles. That would mean a 15.2
mln average in the first two months of the year compared with 15.3 mln for the
Jan-Feb 2023 period. Next week, the market's attention turns back to the US
labor market. On top are JOLTS, ADP, and most importantly, the nonfarm payroll
report. The median forecast in Bloomberg's survey is for a 180k increase in
nonfarm payrolls after 353k was estimated in January. 

Canada also
reports its February jobs data at the end of next week. 
But, ahead of
it, on Wednesday, March 6, the Bank of Canada meets. It is too early for the
Bank of Canada to move. The swaps market has about an 80% chance of a cut in
June, virtually unchanged on the week. The market is pricing in three rate cuts
this year and a 40% chance of a fourth cut. A week ago, only three cuts were
discounted. Mexico sees its manufacturing PMI and the IMEF surveys today.
Mexico also reports January worker remittances. There is a strong seasonal
pattern for remittances to decline from December (past 19 consecutive Januarys
without fail). Next week's highlight for Mexico is the February CPI on March 7.
A continued moderation is expected, and this may fan speculation of a rate cut
at the March 21 Banxico meeting. Brazil reports Q4 23 GDP today and February
vehicle sales. The economy eked out a 0.1% gain in Q3 23 and may be fortunate
to repeat that in Q4.

The US dollar
traded inside Wednesday's range yesterday and is inside yesterday's range so
far today. 
Inside days are often seen as reversals. But it does
not look like the greenback bulls have been satiated. The greenback held the
five-day moving average, slightly below CAD1.3540 and settlement was little
changed near CAD1.3580. The Canadian dollar has fallen every week this year so
far but one (week ending Feb 9 when it rose by 0.02%). It was off 1% in
February and almost 1.5% in January. The immediate cap can be found in the
CAD1.3600-25 area. The Mexican peso was the strongest currency in the
world in February, rising almost 1% against the US dollar. 
For the
past five sessions, the dollar has traded in the range set on February 22
(~MXN17.0120-MXN17.1570). It may stay in that range today. The downtrend line
we are monitoring comes in near MXN17.08 today and around MXN17.0250 at the end
of next week. The dollar held barely below BRL5.0 yesterday and has not closed
above there since the end of last October. The lower end of the recent range is
BRL4.91-BRL4.92. The real slipped by about 0.35% in February after losing
almost 2% in January. 



Source: Ueda's Comments Knock the Yen Back, while the Euro Flirts with $1.08