More Seesaw in FX as US GDP Looms

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Market Drivers March 28, 2018
USDJPY pops then drops
Cable flushed up and down
Nikkei -1.34% Dax -1.53%
Oil $65/bbl
Gold $1341/oz.
Bitcoin $7886

Europe and Asia:
No data
North America:
USD GDP 8:30

It’s been another seesaw night of trade in the currency market with cable and yen yanking both longs and shorts out of their positions as think markets, lack of data and end of month flows caused V-shaped moves in both Asian and European session trade.

In Asia, USDJPY was initially driven lower after yet another ugly close in equities in yesterday’s New York trade, but then news that Kim Jong Un visited China last week, infused a note of relief into the market as traders assumed that North Korea may be willing to make concessions on denuclearization on the peninsula. USDJPY rose all the way to 105.75 but dropped back when European bourses opened up lower.

In UK a story from Times suggested that UK may have come up with a fresh solution to the hard border issue with Ireland and that helped fuel a rally in cable in early Asia. The pair eventually was able to just take out the 1.4200 figure but then plunged in early Frankfurt on yet more end of month flows hitting a low of 1.4135 before finally catching a bid. The up and down action left both long and shorts befuddled, but once the real money supply is finished cable could make another foray towards the highs, especially if Brexit story proves true and progress has been made on the Irish border issue which remains the toughest political and economic barrier in the negotiations.

Meanwhile, USDJPY which remains battered is desperately trying to carve out some kind of a tradable bottom after months of selling price action. Today US GDP data is projected to print at 2.7% versus 2.5% eyed. If the number meet or beat the forecast they would provide the type of fundamental support that USDJPY has sorely needed. Stronger than expected growth could convince the market that US yields are headed higher and push USDJPY through the 106.00 figure as the day proceeds. A miss, however, would only confirm the bears worst impulses that US economic growth has actually peaked, that the Fed is behind the curve and that monetary policy may have to reverse quickly as aggregate demand slows, all of which could push USDJPY to fresh cycle lowe.

Boris Schlossberg
Managing Director

One thought on “More Seesaw in FX as US GDP Looms”

  1. Hi, it seems that the US traders analyzes USD fx market from a domestic perspective.
    Sure the WH chaos [on twitter] is disturbing and the US public debt is staggering and increasing rapidly. BUT, the FED is actually tightening by increasing rates and uniquely decreasing its balance sheet.
    Meanwhile in EU the public debt ration to GDP is over 100% on average; compared with USA 70%, with Southern parts of EU much worse of course. That is the real reason of the separatism movements in Spain and Italy!
    EU banking system has much higher bad debt ratios compared to US banks, especilly in the Southern EU. That is really a ticking bomb!
    ECB is not increasing rates, nor ending its purchases of public debt and nor ending its repurchases of public debt. ECB has the governments of the Eurozone on life suppory with +40% of all public debt on its balance sheet with zero interest rates.
    If Draghi stops increasing ECBs holdings of Eurozone’s Sovereign Debt and/or actully starts increasing interest rates the cost of servicing the debt will make Southern governments go belly up very quickly. The cost of interest rates will eat up the public finances very fast, especilly having mind the very expensive social-wellfare systems with already very high taxation.
    BoJ also owns some +40% of Japans public debt and even a chunk of its share market.
    So the rally in the Yen and Euro against the Dollar seems deaf, blind and mute in relation to the other currencies debt sitution and their very fragile public finances. USA has actually a relative solid and deleverage financial situation, that is once again “relatively speaking”.
    Nevertheless the bullish bets on USD are at record lows.
    It would be interesting to read your thoughts on the public debts and monetary policy in USA compared to EU and Japan?

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