Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Elliott Waves: Your "Rhyme & Reason" to Mainstream Stock Market Opinions - 6th Aug 22
COST OF LIVING CRISIS NIGHTMARE - Expect High INFLATION for whole of this DECADE! - 6th Aug 22
WHY PEAK INFLATION RED HERRING - 5th Aug 22
Recession Is Good for Gold, but a Crisis Would Be Even Better - 5th Aug 22
Stock Market Rallying On Slowly Thinning Air - 5th Aug 22
SILVER’S BAD BREAK - 5th Aug 22
Stock Market Trend Pattren 2022 Forecast Current State - 4th Aug 22
Should We Be Prepared For An Aggressive U.S. Fed In The Future? - 4th Aug 22
Will the S&P 500 Stock Market Index Go the Way of Meme Stocks? - 4th Aug 22
Stock Market Another Upswing Attempt - 4th Aug 22
What is our Real Economic and Financial Prognosis? - 4th Aug 22
The REAL Stocks Bear Market of 2022 - 3rd Aug 22
The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’ - 3rd Aug 22
Don’t Be Misled by Gold’s Recent Upswing - 3rd Aug 22
Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse" - 31st July 22
Gold Stocks’ Rally Autumn 2022 - 31st July 22
US Fed Is Battling Excess Global Capital – Which Is Creating Inflation - 31st July 22
What it's like at a Stocks Bear Market Bottom - 29th July 22
How to lock in a Guaranteed 9.6% return from Uncle Sam With I Bonds - 29th July 22
All You Need to Know About the Increase in Building Insurance Premiums for Flats - 29th July 22
The Challenges on the Horizon for UK Landlords - 29th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22

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.


© 2005-2019 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