A note via ING forecasting lower for USD/JPY, to 105 in three months
(1) Japan’s GPIF probably will not pour money into overseas bonds when $/JPY is above 110
(2) the rally to 112 was largely down to USD funding strains, which should reverse into April
(3) Japan’s large current account surplus will see JPY favoured in a recession.
Its a detailed note, but this snippet on point2:
Amongst many fire-fighting measures, the Fed and the US Treasury have since re-introduced schemes to support the CP market directly (CPFF & MMLF) and measures to support investment grade corporate issuance (PMCCF and SMCCF)
Along with the promise for unlimited QE, the Fed has managed to introduce some calm into money markets
We expect even calmer conditions once the Japanese financial year-end has passed (March 31st) and the Fed starts its CPFF program in April. A turn-around in the basis swap should take some upside pressure off USD/JPY.
A rough day for Japanese stocks as Asian equities mostly fall
The Nikkei is the biggest loser in the region and Japanese stocks are not helped by the fall in SoftBank shares today, after Moody’s downgraded the company’s rating further from Ba1 to Ba3 yesterday – despite the company calling the move as “biased and mistaken”.
The Hang Seng is down by 0.8% while the Shanghai Composite is down by 0.4%, although there are decent gains in Australia (+2.3%) and India (+3.3%) on the day.
That said, with US futures sitting just over 1% lower currently, it is setting up a softer risk tone ahead of European morning trade. As such, risk/commodity currencies are on the back foot with AUD/USD down to 0.5915 currently – lower by 0.7% today.
Meanwhile, USD/JPY is also sitting lower as the yen is the best performing major currency amid a further drop in bond yields. The pair is currently trading at 110.60.
Risk is faring better as the US reaches a stimulus agreement
The dollar continues to sit at the bottom but is accompanied by the yen and franc on the day, as risk is keeping more optimistic to start European trading.
The aussie, kiwi and loonie have extended gains after the US reached a bipartisan agreement on the stimulus package to combat the economic fallout from the virus outbreak.
AUD/USD is back above 0.6000 as price also holds above both the key hourly moving averages, hinting that the near-term bias is now more bullish.
The pound is also continuing to capitalise on the weaker dollar after a solid performance yesterday, with cable now rising above the 1.1800 level.
But besides the aussie and kiwi, the other major currencies are sitting in a bit of a limbo against the dollar. Sure, they are paring losses against the greenback from over the past few weeks but the near-term technical picture remains more complicated.
As things stand, they are all (except the yen) sitting in between both the 100 and 200-hour moving averages against the dollar so far on the week still.
This points towards a more mixed mood that any significant dollar retracement may still be fleeting as the market continues to deal with the virus fallout.
As such, I would argue that we’re still a bit caught in the middle between a full-on ‘retracement week’ and a ‘early rally, late fizzle’ kind of week at the moment.
But for now, risk is sitting in a better spot but it is still too early in the day to draw conclusions. We have to wait and see what Wall Street has to say as well later today.
The dollar is pushing forward with gains once again as it creeps higher against the euro and franc to begin the European morning. EUR/USD is brought down to a session low of 1.0845 after having traded around 1.0920 a few hours ago.
The greenback is also maintaining solid gains against the aussie and kiwi, while USD/JPY is looking to keep above 109.00 to start the session.
For EUR/USD, the pair looks to be making its way back to test the 1.0800 level but the key support level to watch out for will be the February low @ 1.0778.
Once that gives way, it opens up yet another slippery slope for the greenback to build further momentum to the downside.
As things stand, it looks like the dollar funding pressure is continuing to run its course.
Price moves below its 200 hour MA ahead of the ECB decision.
The EURUSD has moved to a new session low on the day. The low just reached 1.12081. Headlines that Germany is ready to ditch balanced-budget to combat coronavirus is so far not giving the EUR a boost. The ECB decision will be out shortly where they are expecting to cut rates and potentially announce more QE and liquidity measures.
The price of the EURUSD remains below its 200 hour moving average. That is close risk for the pair now. The lows from March 6 and March 20 at 1.1273-78 are also risk for shorts. The topside channel trend line comes in at 1.13035. Staying below those levels still more bearish technically, and keeps the sellers more in control.
On the downside the 1.1183 area is the next target, followed by the downward sloping channel trendline at 1.1170. Below that the 50% retracement of the move up from the February 21 low comes in at 1.11368 and the 200 day moving average comes in at 1.10995.
Forex futures positioning data for the week ending March 3, 2020
EUR short 87K vs 114K short last week. Shorts decreased by 27K
GBP long 35K vs 30K long last week. Longs increased by 5K
JPY short 42K vs 56K short last week. Shorts decreased by 14k
CHF short 3K vs 1K long last week. Shorts increased by 4K
AUD short 52k vs 44K short last week. Shorts increased by 8K
NZD short 17K vs 15K short last week. Shorts increased by 2K
CAD long 11k vs 15K long last week. Longs increased by 4K
The EUR remains the largest speculative position and it is still short, but there was a relatively large liquidation of 27K. The EURUSD bottomed on February 20. The price has been up 9 of the last 11 trading days. The squeeze higher seems to have led to some liquidation of the short positions. Traders are still offsides given the recent sharp move back higher.
The JPY has been getting stronger as stocks and rates tumbled. The USDJPY is trading at the lowest level since August 27 (higher JPY). Speculative positions remain short JPY (long USD), and losing money. Like the EUR, the position has been trimmed but traders remain short the JPY (long the USD) and against the price trend this week.
The AUD has moved higher off the low from last Friday. Speculative positions in the AUD saw an increase of 8K in the net short position. The short is losing against the rising value of the AUD this week.
The speculative position in the GBP (Long 35K) is benefiting this week as the GBPUSD has marched higher last Friday’s low.