Intraday Market Thoughts

Liquidity Taps Wash Away Yen

by Adam Button
Sep 19, 2013 22:33

The Fed has restored the world of unlimited money and that was a signal to get out of yen. JPY fell hard on the day with EUR/JPY rising more than 200 pips to the highest since 2009. Up next is Japanese department store sales.  One year ago this month, the ECB rocked financial markets by announcing its readiness to unleash the OMT. One year later, the Federal Reserve sent global stocks to new record highs by deciding not to taper.

The dollar consolidated some of its losses after the shock announcement from the Fed but the real story was yen weakness. The move from the Fed signaled another round of easy liquidity that could extend well beyond mid-2014 if the US economy continues to muddle along. That's great news for carry trades and the yen remains a cheap funding currency. In addition, hawkish BOJ member Kiuchi opened up to the possibility of further easing.

From a low of 97.75 after the Fed, USD/JPY rose as high as 99.62. EUR/USD broke resistance at the highs of the year and other yen crosses also made formidable gains.

The dollar got some help from upbeat economic data. Initial jobless claims were at 309K compared to 330K expected, although computer problems were likely behind the surprise. The Philly Fed rose to 22.3 compared to 10.0 expected and existing home sales surprised to the upside to the highest since 2007.

Cable was particularly sluggish after weeks of outperformance. UK retail sales delivered the original blow to the pair and it fell further throughout the day to 1.6030. The psychological 1.60 is now back in focus and will act as the near-term pivot point.

Another pair to watch is EUR/CHF as it tests the 200-day moving average at 1.2300. The 200-dma has repeatedly supported this pair recently and the latest test will be a major barometer.

The calendar is typically quiet in the Asia-Pacific to end the week and that's the case today. 

Another thing to watch for is apprehension about the German election. Merkel is losing ground in the latest polls and that could lead to a euro slide heading into the weekend. The lone item on the calendar is August Japanese department store sales at 0530 GMT.

Our Premium Insights from last night issued 3 hours before the FOMC announcement were longs on EURUSD, GBPUSD and AUDUSD, which hit all targets with the exception of GBPUSD, as it awaits the final target at 1.6195. But both shorts in gold were stopped out. Today, we issue a fresh round of Premium Insights with 2 new trades in each of EURUSD, AUDUSD and AUDCAD, while we backtrack on gold to re-assess the medium term dynamics. We will avoid JPY pairs for now ahead of a looming  announcement on Japan's consumption tax. And don't forget the looming announcement from the White House regarding the new Fed  chairman.
Act Exp Prev GMT
Existing Home Sales (AUG) (m/m)
5.48M 5.25M 5.39M Sep 19 14:00
Existing Home Sales Change (AUG) (m/m)
1.7% -2.6% 6.5% Sep 19 14:00
Retail Sales ex-Fuel (AUG) (m/m)
-1.0% 0.0% 1.2% Sep 19 8:30
Retail Sales (AUG) (y/y)
2.1% 3.3% 3.0% Sep 19 8:30
Retail Sales (AUG) (m/m)
-0.9% 0.4% 1.1% Sep 19 8:30
Retail Sales ex-Fuel (AUG) (y/y)
2.3% 3.1% 3.2% Sep 19 8:30
Continuing Jobless Claims (SEP 6)
2.787M 2.900M 2.815M Sep 19 12:30
Initial Jobless Claims (SEP 13)
309K 330K 294K Sep 19 12:30
Philadelphia Fed Manufacturing Survey (SEP)
22.3 10.0 9.3 Sep 19 14:00

Latest IMTs