Thursday was busiest since 2008, Kuroda's Justifies Stocks

The wild moves in the yen and Nikkei frayed nerves last week and all eyes will be on Japanese markets at the open on Monday. The economic calendar is empty in Asia and it will remain quiet for the remainder of the day with the US and UK on holiday Monday.  Citi said Thursday's FX Volumes were their busiest since 2008. Weekly CFTC positioning data showed a jump in euro and Australian dollar shorts.  GBPUSD fell for the 3rd straight week. GBP, CAD and AUD are the only decliners vs USD this week . 2 USDCAD,  2 EURUSD, 1 of 2 USDJPY, 2 of 2 EURJPY and 1 silver trades are in progress, while 2 AUDUSD await fill. All of these trades are in the latest Premium Insights.

 

Japanese markets are on the precipice as the Bank of Japan attempts to keep a lid on JGB yields. The Nikkei 225 is walking the razors edge as traders waver between a near-panic and dip buying. The closures in the US and UK could calm Japanese markets but the lack of liquidity could also exaggerate moves. BoJ governor Kuroda's remarks this weekend justified the rally in Japanese equities indicating "no sign at this point of excessively bullish expectations in asset markets or in the activities of financial institutions".

 

Moves in Nikkei futures on Friday were extremely whippy. Every day the market goes without a return to stability, the more likely a deep slide becomes. So far, the theme has been to buy the yen as the Nikkei falls but a continued rise in yields could possibly threaten to reverse the correlation.

 

Citi said in a note that Thursdaywas their highest FX trading volume day since 2008. Much of the trading was focused in USD/JPY. A countertrend day on high volume can indicate a top so USD/JPY bulls should be cautious.

 

Commitments of Traders

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

EUR -80K vs -46K prior

JPY -95K vs -88K prior

GBP -77K vs -65K prior

AUD -32K vs -13K prior

CAD -32K vs -44K prior

NZD +18K vs +23K prior

CHF -19K vs -15K prior

US Dollar Index longs at 46K vs 35K prior

 

The market bet heavily against the euro but it wasn't rewarded with the single currency remaining stubbornly bid. Positioning is growing stretched and there is the risk of an exaggerated rally on positive headlines (dampening expectations for negative rates perhaps?).

The other takeaway is the powerful change in AUD sentiment. In early April the Australian dollar net was +84K. Speculators have embraced the falling Aussie and that will add volatility in the weeks ahead.