Intraday Market Thoughts

Yen and Euro Extend Reversals, Gillard Wins

by Adam Button
Feb 27, 2012 0:53

The yen slumped and the euro soared on Friday as traders are forced out of long-held positions. GBP was the best performer on Friday while JPY lagged badly. The Commitments of Traders data showed a sharp drop in JPY longs. Aussie PM Gillard wins Party lead comfortably, while European leaders look into agreeing on combined bailout fund. All oil & EURUSD long hit their Premium targets.

Australian Prime Minister Julia Gillard won the vote for the leadership of the Labor Party by a comfortable margin of 71 to 31, causing little reaction in the Aussie.

European leaders are set to reach an agreement to boost the Eurozone rescue fund by combining the current EFSF fund (now at E250 bln) with those of its successor ESM (E 550 bln) to attain a combined total of E750 billion. All eyes will be on this week's 2nd round of LTRO tender from the ECB, which is estimated to meet about E 400 bln in demand from European banks.

CFTC positioning data showed JPY longs scrambling to the exits, falling to +17K from +29.5K in a move that likely continued since the data was collected at the close on Tuesday. EUR shorts were pared to 142K from 149K, cable shorts were cut to 31K from 41K. The commodity currencies saw only small changes.

It was a relentless squeeze on Friday that continued right to the close as USD/JPY rose above 81 and EUR/USD hit 1.3487. There wasnt a particular catalyst for the moves but the market is wary of Wednesdays LTRO and the potential for a lull in the European sovereign crisis.

The ECBs Weidmann and Nowotny hinted that the upcoming LTRO will be the final one. Germany also softened in its opposition to increasing the ESM as Schaeuble broke ranks with the hardliners.

US economic data improved with the final reading on Feb consumer sentiment at 75.3 versus 73.0 expected. The improvements were not enough to sway the Feds Williams (voter) who stopped just short of calling for more QE in a speech. Meanwhile Bullard said he would need to see slowing growth and falling inflation, something he believes is unlikely with oil prices rising. Plosser, a consistent hawk, said he is against buying MBS.

Brent crude hit $125 and WTI nearly hit $110, leading the IMFs Lipsky to warn that high prices are a downside risk to economic growth.

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