USD/JPY falls as risk trades crumble on Trump threat

Trump’s threat hits hard

Forget Powell, the market is entirely focused on Trump now and what he’s going to announce this afternoon.
Gold is soaring, stocks are crumbling and USD/JPY is at the the lowest since Aug 13, down 80 pips.

Trump's threat hits hard

Cable falls below 1.2200 as pound pares some of its overnight gains

GBP/USD falls to a session low of 1.2195

GBP/USD H1 23-08

The pound is losing some further ground in the European morning with cable now threatening to slip back under the 1.2200 handle. Price has fallen to a session low of 1.2195.
As mentioned earlier, topside resistance remains at the 50.0 retracement level @ 1.2267 and that remains the risk for sellers. Meanwhile, the risk for buyers is if price holds a break back below the 1.2200 handle.
If we do see such a move, it will open up a test towards the 100-hour MA @ 1.2155 as well as potentially the 200-hour MA @ 1.2124.
There isn’t much driving the move lower here but as highlighted in the earlier post as well, Merkel’s comments isn’t exactly a major game-changer to the Brexit equation – not when it isn’t back by concrete solutions to the Irish border still.

Goldman Sachs best US recession hedge is short USD/JPY

Client note from GS overnight, in summary:

  • A global recession is likely to see falling US yields alongside falling US stocks
  • USD/JPY the most likely pair to weaken
GS cite
  • US/yen falls during risk-off periods as investors move into the safe-haven yen
  • BOJ yield curve control policy fixes nominal yields in Japan, thus a US yield fall makes a more favourable Japan / US differential
(hmmmm …. the BOJ have allowed JGB yields to drift lower …. and regardless, while the differential might improve as GS suggest its still positive for US assets. Anyway, back to GS … )
  • not expecting a global recession in the near term
  • but do not a a drop in activity ex-US
Other trades GS like in the event of a global recession when US stocks drop:
  • long AUD/CLP, EUR/PLN,
  • short NOK/SEK, EUR/CZK and EUR/CAD

EUR/USD forecast to 1.10 before the end of the year (might be a little quicker than that though ….)

A forecast for euro against the USD to fall to 1.10 before the end of this year.

Well, yeah. Not like there is far to go.
The forecaster, to be fair, has been calling it lower from a lot higher than here. After 1.10:
  • Rabo then expect it to trade to 1.15 on a 12 month horizon
Say the moves in Germany could prove supportive:
  • perhaps the German government will bow to calls of a fiscal belt loosening has breathed a little support into the EUR
On the European Central Bank:
  • In September it is likely that the outlook for the Eurozone and the reactions of the ECB will be instrumental in determining the direction of EUR/USD
On Italy:
  • the market has reacted well to the assumption that Italy could avoid a snap election and another budgetary battle with the EU in the near term
  • Italian politics combined with Brexit risks remain potentially negative factors for the EUR
On the Fed:
  • our expectation that the pace of Fed rate cuts are likely to accelerate in 2020 suggest that there is still scope for EUR/USD to head a little higher medium-term and we maintain our forecast of 1.15 on a 12 month view

CFTC commitment of traders: GBP shorts trimmed modestly. JPY longs increased.

Forex futures positioning data among noncommercial traders for the week ending August 13, 2019

  • EUR short 47K vs 44K short last week. Shorts increased by 3K
  • GBP short 96K vs 102K short last week. Shorts decreased by 6K
  • JPY long 25K vs 11K short last week. Longs increased by 14K
  • CHF short 13k vs 16k short last week. Shorts trimmed by 3K
  • AUD short 63k vs 55k short last week. Shorts increased by 8K
  • NZD short 13K vs 12K short last week. Shorts increased by 1K
  • CAD long 14K vs 24K long last week.  Longs trimmed by 10K

Highlights:

  • JPY and CAD remain long, while the other major currencies maintain short position
  • The JPY longs increased by 14K. That is the largest long position since November 2016 (see chart below).
  • CAD longs were trimmed by 10K.
  • GBP shorts were trimmed modestly in the current week to 96K but the position remains the largest speculative position. The GBP moved modestly higher in the week.

JPY longs are the largest since November 2016

Japan is once again the largest holder of US Treasuries

Japan re-takes the lead

The latest TIC flows data is out and shows:
  • Japan Treasury holdings at $1.123 trillion
  • China holdings at $1.113 trillion
They’ve been neck and neck for awhile. Two years ago China passed Japan but they’ve now reversed. One line of thinking will be that this is trade war related but I wouldn’t be so quick to draw that conclusion.

Eyes on the PBOC reference rate setting for onshore yuan due soon

The mid rate from the People’s Bank of China for USd/CNY is due just after 0115GMT.

Reuters estimate is for a rate at 7.0421. If you’ve been following aolong the past week or so you’ll know that these estimates have come in on the igh side for USD/CNY. yes, the PBOC is allowing the yuan to weaken, but not by as much as expected.
I do wonder if that will change soon given the … is collapse to strong a word? … weaker credit growth reported yesterday:
  • New yuan loans ¥1,060.0 bn vs ¥1,275.0 bn expected
  • Aggregate financing ¥1,010.0 bn vs ¥1,625.0 bn expected
  • China FX regulator chief says does not expect disorderly depreciation of the yuan
Offshore yuan relatively steady today:
The mid rate from the People's Bank of China for USd/CNY is due just after 0115GMT.