Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
RECESSION When Yield Curve Uninverts - 8th Sep 24
Sentiment Speaks: Silver Is Set Up To Shine - 8th Sep 24
Precious Metals Shine in August: Gold and Silver Surge Ahead - 8th Sep 24
Gold’s Demand Comeback - 8th Sep 24
Gold’s Quick Reversal and Copper’s Major Indications - 8th Sep 24
GLOBAL WARMING Housing Market Consequences Right Now - 6th Sep 24
Crude Oil’s Sign for Gold Investors - 6th Sep 24
Stocks Face Uncertainty Following Sell-Off- 6th Sep 24
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES - 6th Sep 24
AI Stocks Portfolio and Bitcoin September 2024 - 3rd Sep 24
2024 = 1984 - AI Equals Loss of Agency - 30th Aug 24
UBI - Universal Billionaire Income - 30th Aug 24
US COUNTING DOWN TO CRISIS, CATASTROPHE AND COLLAPSE - 30th Aug 24
GBP/USD Uptrend: What’s Next for the Pair? - 30th Aug 24
The Post-2020 History of the 10-2 US Treasury Yield Curve - 30th Aug 24
Stocks Likely to Extend Consolidation: Topping Pattern Forming? - 30th Aug 24
Why Stock-Market Success Is Usually Only Temporary - 30th Aug 24
The Consequences of AI - 24th Aug 24
Can Greedy Politicians Really Stop Price Inflation With a "Price Gouging" Ban? - 24th Aug 24
Why Alien Intelligence Cannot Predict the Future - 23rd Aug 24
Stock Market Surefire Way to Go Broke - 23rd Aug 24
RIP Google Search - 23rd Aug 24
What happened to the Fed’s Gold? - 23rd Aug 24
US Dollar Reserves Have Dropped By 14 Percent Since 2002 - 23rd Aug 24
Will Electric Vehicles Be the Killer App for Silver? - 23rd Aug 24
EUR/USD Update: Strong Uptrend and Key Levels to Watch - 23rd Aug 24
Gold Mid-Tier Mining Stocks Fundamentals - 23rd Aug 24
My GCSE Exam Results Day Shock! 2024 - 23rd Aug 24
Orwell 2024 - AI Equals Loss of Agency - 17th Aug 24
Gold Prices: The calm before a record run - 17th Aug 24
Gold Mining Stocks Fundamentals - 17th Aug 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

China's GDP May Threaten Yen Carry Trades

Currencies / Yen Carry Trade Apr 18, 2007 - 10:53 PM GMT

By: Ashraf_Laidi

Currencies

Going into Thursday's trading, FX traders will watch the return of major economic data from the US and Canada. But before previewing these events and their FX implications, it's worth giving synopsis on what happened in the NY session. There are some doubts about the durability of the carry trade (selling yen across the board simultaneous with rising gold and equities).

We have seen in early morning NY (around 8-9 am EST) how the yen rallied across the board, dragging the dollar, pound and euro. Rumors of a hedge fund caught in the wrong side of the rising pound and as well as rumblings of renewed reports of sub-prime defaults also led to some unwinding, which caused US stocks to open lower. With US equities struggling into record territory, a loss of momentum could easily turn into sharp selling in the event of a weak reading in the leading indicators and Philly Fed index.


Tomorrow's March CPI report from Canada (7 am EST), US weekly jobless claims (8:30 am), March US leading indicators (10 am) and the April Philadelphia Fed survey (12 pm) will be highly scrutinized. But before all this, stay tuned ahead of China's Q1 GDP due at 11 am EST. See details below.

USDJPY: Running out of Carry. Watch Chinese GDP at 11 pm EST

Our forecast of 120 yen failed to materialize as the rise in USDJPY gave out at 119.85 before the pair started looking increasingly shaky on a combination of general deterioration in USD sentiment--brought about by the 26-year lows against the pound sterling and soft US inflation maintaining the case for a 2007 Fed easing. Rumors of a possible Bank of Japan rate hike as early as May did manage to boost the yen.

The 4-hour chart shows the declining channel has a resistance at 118.65-70, where the pair topped out in late Wednesday afternoon NY trade. The prolonged decline towards the 118.50s could open the door past the 118.53 support, until the next key target of 118.09 -- (Wednesday low), which is both the 38% retracement of 115.2-119.87 move and just above the 200-day MA. A clear break of the 200 day means a breach below 117.90, which clears the way for 117.54 -- 50% retracement of the said move.

What about tonight's release of China's Q4 GDP? The report is due at 11 am EST and is expected to show a figure of just below 11.0%. The reaction in FX and commodities markets shall depend on the reaction in Chinese equities. If the report proves weaker than expected (below 10.6%), then worries of a China slowdown could impact Chinese equities negatively, in which case could weigh on commodities and accelerate the unwinding of carry trades, thus, boosting the yen, and helping the US dollar against the Canadian, Aussie and sterling. Nonetheless, if the report is interpreted to show continued overheating in China (a report at above 10.8%), then markets will fear the People's Bank of China will have to undertake tougher measures in tightening policy, which may also weigh on Chinese indices.

With Chinese equity markets trading near record highs, the Dow already at record and European indices at 6-year highs, the risks of an international slide could well materialize today.



USDCAD: 1.1267 Trendline Support Depends on Core CPI

After briefly regaining the 1.13 figure top 1.1337 on weak shipments data, USDCAD pursued its sell-off to fresh 5-month lows at 1.1267, touching the 11-month trend line support. A key catalyst in influencing the CAD's next move will be the 7 am EST release of March CPI, expected up 2.0% y/y, matching the February figure.

But the more important figure will be the core CPI (excluding 8 commodity items), which is expected to have slowed to 2.3% y/y from 2.4% y/y in March. In the event that core CPI grows by at least 2.3% and the headline CPI remains at least at 2.0%, then markets drag USDCAD below the 1.1270 figure towards the interim support of 1.1250 and 1.1220 on the rationale that the inflation is uncomfortably high for the Bank of Canada. Any upside potential in the pair is seen capped at 1.1345-50.

It is important to note that USDCAD often rises on during unwinding of carry trades emerging from hedge fund troubles or renewed reports of sub-prime defaults. A core CPI of at least 2.3% coupled with US weekly jobless claims above 330-335K, may extend the decline in USDCAD. We do not expect the leading indicators index to be a market mover unless it shows a rise of more than 0.3% or 0.4%, or another decline, following the 0.5% fall in February. The key figure will be the Philly Fed index due at noon, expected to rebound to 2.0 from 0.2.

By Ashraf Laidi
CMC Markets NA

Ashraf Laidi is the Chief FX Analyst at CMC Markets NA. This publication is intended to be used for information purposes only and does not constitute investment advice. CMC Markets (US) LLC is registered as a Futures Commission Merchant with the Commodity Futures Trading Commission and is a member of the National Futures Association.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in