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Yen swayed by rumours and disappointment

Posted by Fullerton Markets on August 1, 2016 at 2:00 PM


USD/JPY hit 102 on disappointment, is it a good bargain to Long USD/JPY now?

Rumours got the Yen traders excited last week.  It started as early as last Tuesday, 3 days before the scheduled monetary policy announcement by Japan.  Market had high hopes on the scale of the stimulus package.  The first rumour was the actual package is going to be a puny 6T (trillion) yen as oppose to over 20T, what the market was expecting.  It sent the Yen sellers running for cover, USD/JPY dropped more than 150 pips.  A day after, another rumour suggested the package could be close to 30T, but Japan officials were quick to react and denied the information.  This got both the Yen buyers and sellers scrambling again.  The final blow came during the actual announcement last Friday, taking USD/JPY down to a 3-week low of 102.  BOJ only increased its ETF annual buying from 3.3T to 6T, no rate cut and no plans to buy long term Japanese Government Bonds (JGBs).  The only glimpse of hope was an assessment on the effect of their existing stimulus package will be done in the next rate review in September and that might lead to major changes in policy.  Little was done to satisfy the market’s appetite, thus the USD/JPY tumbled through 104 and 103 to reach 102.

Traders had no qualms about shorting USD/JPY, because the FOMC statement on Thursday did not highlight possibilities of rate hike anytime soon.  As the US presidential election is approaching, market is not pricing in a rate hike until early 2017.  US advance GDP came in at 1.2%, way off the expectation of 2.6%.  Consolation is the previous figure was revised upwards from 0.5% to 1.1%.

This week would be an exciting week.  RBA kick off its interest rate and rate statement.  A rate cut is widely expected.  However, Australia’s recent data has shown improvements.  We will not be surprised if RBA decides to hold on until next meeting.  The other central bank expected to cut interest rate this week is BOE.  Ever since the end of Brexit referendum, Mark Carney has provided a gloomy outlook of UK economy and is prepared to take pro-active actions.  A series of PMIs will be released before BOE’s rate announcement.  If the PMIs are as bad as or worse than expected, a rate cut would be highly possible.

As usual for the first week of the month, the most important US job data, non-farm payrolls will be released.  We expect any reaction to positive numbers to be short lived, as rate hike reality will set in again thereafter.  An underperformed figure could weigh down the dollar even further.

 

 

Our Picks

GBP/USD – Slightly bearish.  BOE is expected to announce a rate cut on Thursday.  We have experienced surprises by central banks lately, if BOE decides to hold their rate, prices may head towards 1.35.  A rate cut should push price towards 1.30.

 FM WMR 20160801-GBPUSDH4.png

NZD/USD – Slightly bearish.  Kiwi was surprisingly strong with no obvious reason, besides being a high yielder among the major currencies.  We foresee rate cut expectation to return as early as this week, before RBNZ rate decision on 11 Aug.

 FM WMR 20160801-NZDUSDH4.png

Gold (XAU/USD) – Slightly bullish.  We continue to hold our bias.  Underperformed or mediocre NFP figures could push Gold price beyond 1353.

 FM WMR 20160801-XAUUSDH4.png

 

Top News This Week (GMT+8 time zone)

Australia: Cash Rate.  Tuesday 2nd August, 12.30pm.

We expect figures to remain unchanged at 1.75% (previous figure was 1.75%).

UK: Official Bank Rate.  Thursday 4th August, 7pm.

We expect figures to remain unchanged at 0.5% (previous figure was 0.5%).

US: Non-farm Employment Change.  Friday 5th August, 8.30pm.

We expect figures to come in at 185K (previous figure was 287K).

 

 

Fullerton Markets Research Team

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