Ueda helps push USDJPY back towards intervention territory

Good morning

Back in the office after another extremely pleasant trip down to the Isle of Wight to visit some clients, always interesting to see different industries and hear the good things, and the struggles they face. Of all the struggles, currency concerns should never be high on the agenda. If they are, either Mark and I are not doing our job properly or we are not yet involved in helping on the FX side.

We also had a long-overdue catch-up with the key people at Moore (South) accountants who, like us are an owner-managed business, but unlike us are part of a huge network of accountants under the Moore Global brand. Their focus for the time being is very much to ensure firms are prepared for some harder times in case they arrive. Again, similar to our approach, we never claim to know what lurks around the corner but to completely ignore potential issues is never a sound business model and one that shareholders certainly won’t thank the board for.

What did I miss while I was out? Well, USD has pushed a little higher against GBP, with GBPUSD now 1.2270 although it had traded down as far as 1.2245 yesterday morning. EURUSD is back at the 1.0700 area having tested 1.0660 yesterday, GBPEUR has shifted below 1.1500 once again and is now 1.1475. USDJPY is back above 151.00, comments from BoJ Gov Ueda that they were still happy with their very easy monetary policy helped weaken yen. I wouldn’t be surprised of we get some verbal intervention from Japan but with Ueda sounding dovish for the time being it will be difficult for Japan to fight the weak-yen trend.

We don’t have a great deal of economic releases today but instead we have a bundle of central bank officials speaking, including Lagarde and Powell. For the moment the line that many seem to be taking is that although it is possible rates have peaked, there is still a chance of a move higher and cewrtainly no chance of rate cuts any time soon.

Elsewhere, the Israel/Gaza crisis continues with more concern that Israel’s response to the 7th October attacks is unreasonably harsh on the citizens of Gaza, but for Israel remain intent on wiping out Hamas. This is surely a somewhat flawed idea. You can eradicate many of Hamas’ ground troops and even perhaps remove Hamas from power in Gaza but to wipe out Hamas as an ideology is nigh on impossible, indeed the harder they try the more hatred it is likely to incite. Even if Hamas does disappear altogether, their thinking will remain in one form or another.

For now we remain hopeful that the situation doesn’t escalate into a wider war in the region. Already we have reports of attacks on US assets and US attacking various sites. Global politicians are meeting in Paris today to discuss ways of getting aid into Gaza. Eventually there must also be a plan for the rebuilding of Gaza after the utter destruction, whether that falls on the West or whether the likes of Saudi Arabia and Qatar get involved remains to be seen.

Have a great day

- 08.30 BoEs Pill speaks

- 09.00 ECB economic bulletin

- 13.30 US initial jobless claims

- 14.30 Feds Bostic, Barkin speak

- 16.00 Feds Barkin speaks

- 16.30 ECBs Nagel speaks

- 17.00 BoCs Rogers speaks

- 17.30 ECBs Lagarde speaks

- 19.00 Feds Powell speaks

- 22.30 NZ business PMI

- 01.30 RBA monetary policy statement

- 07.00 UK GDP, industrial production

RBA raise rates but it's USD that pushes higher

Good morning

We awake to find the US dollar a touch stronger, perhaps it was Kashkari’s comments that has supported USD, he said is worried inflation could tick higher again and that Fed rate rises may not be over. GBPUSD is at 1.2320, EURUSD 1.0700, leaving GBPEUR a bit lower at 1.1515.

RBA raised rates overnight by 25bps to 4.35% in a move that was widely expected but AUD has failed to respond positively, AUDUSD is down at 0.6430 and GBPAUD is currently 1.9160. RBA managed a dovish tone while raising rates, casting some doubt as to whether further rate rises will be required and I am sure the disappointing China trade data overnight must have had a negative impact on AUD as well. It had been expected around +$80bn, came in at +$56.5bn. It’s still a hefty surplus but isn’t what China will want to see. Mind you their surplus is about the same size as the US trade balance is negative. That’s out this afternoon, expect a deficit around US$60bn.

USDJPY was at 149.75 at expiry which gave rise to a small profit from the option I’d looked at last week. The AUDUSD option I looked at yesterday however isn’t looking so clever, some 100+ pips out of the money but fortunately only cost 10 usd pips. Still some hours to go but I’m not expecting anything from it now.

In other news I see Putin is looking to stand for re-election in 2024 which would keep him in power until 2030. I wonder what the world will look like then. Hopefully not quite what Putin would like to see.

In terms of today, we’ll be watching the Kings speech later this morning. Romania are expected to keep rates unchanged at 7%, while the US trade balance is likely to show a decent deficit once again.

I’m out of the office tomorrow so I’ve added Wednesdays calendar as well. I’m actually down on the Isle of Wight again, I saw a report that the Northern Lights were visible on IoW, something I’d love to see but so far never have. The correct term is Aurora Borealis. There is another sight that can be seen in the night skies, more rare than the Northern Lights, but that has been seen in parts of the UK. It is a thin, purple ribbon of light that glows for 20 minutes or so if you’re lucky. And its name? Steve! Yes, Steve. I don’t think the name quite captures the wonder of the phenomenon.

- 10.00 EU PPI

- 11.30 UK Kings speech

- 13.00 Romania rate announcement

- 13.30 US trade balance

- 15.00 Feds Waller speaks

- 17.00 Feds Williams speaks

- 02.00 NZ inflation expectations

Wednesday

- 07.00 German HICP

- 09.30 BoEs Bailey speaks

- 10.00 EU retail sales

- 10.15 Feds Cook speaks

- 14.15 Feds Powell speaks

- 23.50 Japan current account

USD lower after softer US employment numbers

Good morning

Option expiry times and US economic releases are back to normal following US clock change at the weekend.

US employment numbers on Friday were weaker than expected on all fronts. The headline was +150k against a forecast around +200k, while the unemployment rate ticked up to 3.9% from 3.8%. The previous months strong headline reading of +336k was revised lower to +297k. This will allow Fed to move very cautiously and puts further Fed rate rises less likely. US equities finished the day around 1% higher. The US dollar had been weakening already going into the release after some softer PMI data last week, and the nonfarm numbers sent USD lower still, with GBPUSD reaching 1.2385 and EURUSD up to 1.0745. This morning has seen further USD weakness, GBPUSD is currently 1.2410, EURUSD 1.0750.

GBP has certainly benefitted more than EUR, with GBPEUR now 1.1545, up from a pre-release of around 1.1485 and a low last week around 1.1425. Quite why GBP has made so much ground against EUR is a bit of a mystery to me. As always with GBP, there is a question of whether GBP can hold onto these gains. Mind you, out of Fed, ECB and BoE, it is BoE who are still more likely to push rates higher, this is probably where support for GBP is coming from.

USDJPY also moved with the lower USD, hitting 149.20 Friday, it has tested the 149.80 area a couple of times since but failed to break higher, now 149.40. The downside USDJPY option I looked at last week is currently in the money and buyers of that option can buy spot against it to lock in a small 20 pips profit. Does sound like much but it’s a return of 50% of the 40 pips we paid. Alternatively, buy spot in half the amount of notional to recoup most of the premium paid and leave the rest to run to expiry this afternoon.

AUD has pushed higher against USD ahead of the RBA rate announcement early tomorrow morning. AUDUSD has hit 0.6515 this morning, up from 0.6445. Indeed GBPAUD fell after Fridays US data, trading from 1.8960 to 1.8910, however the stronger GBP since has wiped out those Aussie gains and more, with GBPAUD now 1.9050. There is a decent chance of a 25bps rate rise from RBA. We had some higher Aussie inflation numbers in late October, while RBA’s new Governor Bullock has made some pretty hawkish comments recently. In case they do raise rates, an overnight 0.6550 AUDUSD call costs just 10 pips.

Asian equites markets were stronger overnight, driven by the general idea that rate rises could be coming to an end, but also helped by a a ban of short-selling by Korean regulators which saw the key Korean equity index, KOSPI, move up over 5% this morning which means it is now above 2500, up some 10% from the end-Oct lows around 2275.

Running late today as you’d probably guessed so I’ll have to draw to a close. England cricket team failed to beat Australia which means whatever chance we had to hold onto our world championship has gone. Spurs lost their place at the top of the table as Man City crept above them after beating Bournemouth. Still, Arsenal and Liverpool failed to win which helps. Spurs take on Chelsea this evening which could see us retake the top spot although i’m never confident against Chelsea regardless of how poor they have been playing. It would be typical for Spurs to lose their first match of the season against their old manager.

Have a great day

- 09.00 EU composite PMI

- 09.30 UK construction PMI

- 15.00 CAD Ivey PMI

- 17.00 BoEs Pill speaks

- 18.00 ECBs Nagel speaks

- 00.01 UK BRC retail sales

- 03.00 China trade balance

- 03.30 RBA rate announcement