Escalators and Elevators

The elevator/escalator analogy is apt because it argues that it's a normal correction and that the underlying trends remain in force. We may not get clearer answers early in the week because the US East coast was hit with a heavy weekend blizzard.

Early-week moves in the forex market have been light. The only notable change is a 20-pip gain in USD/CAD after a sharp slide late last week. The loonie was the best performer last week while the yen lagged.

The weekend didn't feature much in the way of market-moving news. The PBOC was quiet but note that new RRR rules to into effect for offshore branches of onshore banks today and that could sap liquidity from the CNH market or trigger a short squeeze.

Kuroda made headlines in Davos as he continued to play down economic worries. Bloomberg cited unnamed BOJ officials who said the inflation target may be pushed back again and that central bankers are disappointed with low wage demands from Japanese labor unions. The BOJ probably only has one more shot at QE and there have been no hints this week but Kuroda likes to surprise so the Friday decision will be a focus all week.

First, December trade balance data is due at 2350 GMT. The consensus is for a 7.0% fall in exports and a 16.4% decline in imports. The weak yen doesn't appear to be having the intended effect.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -137K vs -146K prior

JPY +38K vs +25K prior

GBP -39K vs -31K prior

AUD -36K vs -12K prior

CAD -66K vs -59K prior

NZD -3K vs +2K prior

Yen longs continue to make fresh highs since 2012. The Bank of Japan meeting is this week and that may spook out some of the weaker hands. The snap-back rallies in cable, CAD and AUD could leave plenty of specs off side.