Long GBP/JPY (from 26-Sep to 2-Oct), Yellen dovish
Real-Time AmpGFX – comment on NZD and JPY position closures (Sun 10/1/2017 4:44 PM MDT)
Comment
The USD reaction to the tax plan last week was disappointing, I thought we might see a strong USD reaction. I still tend to think that the USD should rise on this event, but perhaps it will take time, and I am wary of the market shifting focus in the near term.
I thought NZD might see more follow through to the downside last week on the weak NZ business activity survey, political limbo, weak EM markets, and a strong USD.
Its performance has been solid and I am wary of the market reacting to positives; such as: progress on a governing coalition with National still leading government; building permits last week were very strong; China PMI strong and China government has cut RRR for some banks; milk price auction this week is likely to be higher given the recent recovery in milk prices; EM markets started to recover late last week.
I sold the rest of the JPY short, the part against GBP. Trumps’ tweets may evoke a response from NKorea. They are likely to be interpreted by the NK regime as a declaration of war.
Trump tweets over the weekend, in general, are likely to stoke fears that Trump is being distracted from tax reform and may undermine the USD.
Developments in Catalonia may stoke some fears for stability in Europe and undermine EUR and European assets. We may see fund managers turn back towards EM markets as a kind of safe haven. But at the same time boost demand for JPY and gold.
Higher US yields are providing support for the USD so far in Asia this morning. But I don’t feel confident that that will be the dominant theme.
In general, I just feel better getting back to closer square to start the week. I retain a long GBP/CAD position.
The GBP may be down a bit ahead of the UK Tory party conference this week, fearing evidence of disunity and pressure on May’s position. However, if she manages to navigate this event, GBP may recover. CAD economic data appears to be giving back strength earlier in the year, and BoC implied it would not be hiking til it sees clearer evidence of the outlook maintaining above-trend growth and or upward surprises in inflation indicators.
Positions
Long half unit GBP/CAD at 1.6707; s/l 1.6593; t/p 1.6945
Real Time AmpGFX – closed NZD and GBP/JPY positions (Sun 10/1/2017 4:21 PM MDT)
Bought NZD/USD 1 unit at 0.7216 to close short position
Sold GBP/JPY half unit at 150.80 to close long position
Note our stop loss on long USD/JPY was triggered on Friday in the dip after the weaker than expected US PCE deflator
Comment to follow.
Real Time AmpGFX – Yellen, GBP/JPY comment, order update (Tue 9/26/2017 4:23 PM)
The Yellen speech was a dovish outing relative to the recent FOMC meeting. She stuck to the forecasts presented at the FOMC that inflation rises back to the 2% target over the next year or two, and the Fed hikes again this year and three times next year. However, she expressed a clear skew in the risks to inflation undershooting and rates rising more gradually.
US yields fell a bit on the Yellen speech, and the USD gave back some of its earlier gains, but the market reaction was modest. It seems the market is in a more bullish state for the USD at the moment, tending to shake off the negative news.
Furthermore, the market already has priced rates to rise much less than the current FOMC median forecasts. It is essentially already pricing in a significant risk that inflation continues to undershoot the target and in response, the Fed raises rates more gradually. As such, Yellen’s dovish bias is arguably already consistent with market pricing, limiting the scope for yields to fall further.
We entered the GBP/JPY trade again because we still see near 100% chance that the BoE hike on 2-Nov.
US yields maybe resuming an upward path. Fed QT, rising oil prices, tax reform moving into focus. Higher yields support USD/JPY
NKorea remains a potential flashpoint. Trump again made threatening remarks to NK at his press conference with the Spanish leader. This may spark more counter threats from NK. So this is indeed a concern. However. it is interesting that USD/JPY largely ignored the bellicose Trump remarks today.
Positions
Short half unit AUD/USD at 0.7929; s/l 0.7923 t/p 0.7840 (s/l lowered)
Short half unit EUR/USD at 1.1846; s/l 1.1843; t/p 1.1683 (s/l lowered)
Short half unit NZD/USD at 0.7265, s/l 0.7263; t/p 0.7155 (s/l lowered)
Long half unit GBP/JPY at 150.81; s/l 149.67; t/p 159.55
Real Time AmpGFX – bought GBP/JPY (Tue 9/26/2017 10:45 AM)
Bought half unit GBP/JPY at 150.81
Positions
Short half unit AUD/USD at 0.7929; s/l 0.8017; t/p 0.7840
Short half unit EUR/USD at 1.1846; s/l 1.1947; t/p 1.1683
Short half unit NZD/USD at 0.7265, s/l 0.7363; t/p 0.7155
Long half unit GBP/JPY at 150.81
Comment and orders to follow