Intraday Market Thoughts

Sentiment Sours, Yen Shorts Scramble

by Adam Button
Dec 20, 2015 23:47

We look at the potential factors behind the late-week risk aversion in markets. The Canadian dollar is the early-week leader while the yen lags. Coming up in Asia-Pacific trading are reports on the Japanese and New Zealand economies. On Friday, Ashraf's Premium Insights closed GBPJPY short at 181.07 (instead of the stated 176.20) from 185.80 entry, for 473 pips gain. On Thursday, GBPUSD short was closed at 1.4885 for a 225 pips gain. And on Wednesday, GBPNZD SHORT was closed at 2.2055 (instead of the stated 2.1300) from the 2.2440 entry for a 385-pip gain. There are currently five trades in progress 2 of which are at a loss.

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Sentiment Sours, Yen Shorts Scramble - Usdjpy Net Longs Dec 18 (Chart 1)

Weekend news was light. Spain's election was in focus and it largely followed the polls as the ruling conservative party held power but lost its majority.  The market may focus on how a coalition is formed but the euro is largely unchanged to start the week.

Last week the US dollar was the top performer while the pound lagged. The concern was the sharp deterioration in sentiment right until the end of trading. The S&P 500 finished at the lows for the second day in the worst two-day slide since August. The close was the lowest since Oct 14.

The Fed is the natural catalyst on a classic trade. The rhetoric and dots accompanying the hike were more hawkish than expected. Another factor could have been options and futures expirations on Friday. Finally, year-end flows make for  whippy trading, even when the Fed isn't involved. The S&P 500 is now down 2.6% year-to-day and asset managers might be shifting away from risk.

The next two weeks will be tough trading as flows overshadow fundamentals. Momentum tends to last so that's one factor to keep in mind.

In the short-term, Asia-Pacific markets will turn to New Zealand data on credit card spending at 0200 GMT. The prior reading was a healthy +7.8% y/y in a sign that New Zealanders aren't hurting despite cratering dairy prices.

Up next, the Japanese all industry index is due at 0430 GMT. The BOJ introduced some surprising minor easing last week but it was billed as more of a technical adjustment by Kuroda and he remained upbeat on the economy. The index is expected to rise 0.9% m/m.

Commitments of Traders

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

EUR -160K vs -172K prior JPY -27K vs -68K prior GBP -17K vs -24K prior AUD -10K vs -34K prior CAD -51K vs -40K prior CHF +2K vs -26K prior NZD +1K vs +9K prior

Dollar longs headed to the exit, especially USD/JPY. The numbers are pre-FOMC decision and could reflect worries about how the market would react. It could also be a reflection of year-end positions squaring. The squaring of trades ahead of the Fed helps to explain some of volatility in the lead-up to the decision.

Act Exp Prev GMT
All Industry Activity Index (OCT) (m/m)
-0.2% Dec 21 4:30

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