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JPY crosses finally notice the strong bond markets as huge US 10−year note auction on tap

Tue, Nov 10 2009, 15:07 GMT
by Saxo Bank Strategy Team

Saxo Bank

Currencies to consolidate latest moves ahead of US bank holiday tomorrow?

MAJOR HEADLINES – PREVIOUS SESSION

• New Zealand Oct. Credit Card Spending fell -0.2% MoM vs. +0.7% in Sep.
  
  
• Japan Sep. Adjusted Current Account Total out at ¥1338B vs. ¥1315B expected
  
  
• UK Oct. BRC Retail Sales rose 5.9% YoY and Same Store Sales rose 3.8%
  
  
• UK Oct. RICS House Price Balance rose to 34% vs. 28% expected and 21% in Sep.
  
  
• Australia Oct. NAB Business Conditions/Confidence rose to 12/16 vs. 3/14 in Sep.
  
  
• Japan Oct. Machine Orders fell -42.6% YoY vs. -62.1% in Sep.
  
  
• Germany Oct. Wholesale Price Index fell -0.4% MoM and -7.0% YoY
  
  
• Sweden Sep. Industrial Production rose 0.2% MoM vs. 0.5% expected, but fell -15.7% YoY vs. -19.7% expected
  
  
• Sweden Sep. Industrial Orders rose +0.7% MoM and fell -12.1% YoY vs. -18.4% YoY in Aug.
  
  
• Norway Oct. CPI out at -0.2% MoM and +0.6% YoY vs. 0.0%/+0.8% expected, respectively
  
  
• Norway Oct. Underlying CPI out at -0.1% MoM and +2.1% YoY vs. +0.1%/+2.2% expected, respectively
  
  
• Norway Oct. Producer Prices fell -4.1% YoY as expected and vs. -6.7% in Sep.
  
  
• UK Sep. Visible Trade Balance out at £7194M vs. -£6100M expected and -£6073M in Aug.
  
  
• UK Sep. DCLG UK House Prices fell -4.1% YoY vs. -4.9 expected and -5.6% in Aug.
  
  
• Germany Nov. ZEW Survey fell to 51.1 vs. 55.0 expected and 56.0 in Oct.
  
  
• EuroZone Nov. ZEW Survey fell to 51.8 vs. 58.0 expected and 56.9 in Oct.
  
  
• US Oct. NFIB Small Business Optimism rose to 89.1 vs. 88.8 in Sep

THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

•  US Fed's Yellen to Speak (1505)

• UK BoE's Haldane to Speak (1530)

• US Fed's Rosengren to Speak (1615)

• Australia Nov. Westpac Consumer Confidence (2330)

• Japan Sep. Machine Orders (2350)

• US Fed's Fisher to Speak (0030)

• China Oct. Producer/Purchasing Price Index (0200)

• China Oct. Consumer Price Index (0200)

• China Oct. Retail Sales (0200)

• China Oct. Industrial Production (0200)

Market Comments:

Pound pushed back on Fitch comments
The pound was sharply weaker again today after yesterday's attempt at breaking through to new highs vs. the USD and EUR. A couple of developments are playing into today's move. The Fitch statement that UK sovereign debt was at the most risk of a downgrade among top-rated nations. Also playing on the pound's strength of late is the situation with US Kraft's attempted takeover of Cadbury, also a story worth following. A very ugly drop in the Trade Balance didn't exactly help the pound's cause either. Tomorrow's BoE Quarterly Inflation report will provide a more important fundamental spark to the situation as the market has consistently moved very strongly on every new signal from the central bank. Our longer term view is that EURGBP remains overvalued.

JPY crosses: knock-knock, anyone home?
JPY crosses finally woke up and smelled the coffee in early NY trading as they noticed the US 10-year yield benchmark falling to a new five day low this morning back well below 3.50%. The foray above 135.00 in EURJPY looked odd in light of the development in yields since yesterday, and there may be further pressure on the likes of EURJPY and AUDJPY in at least the shortest term, especially if equities try to digest yesterday's blowout move higher with a little consolidation today. Also important is today's $30 billion auction of US 10-year notes.

Looking ahead
After yesterday's blowout day higher in equities failed to deliver massive moves in currencies, it feels like today might give the market a bit of pause. This may or may not have been presaged by an AUDUSD that is shrugging its shoulders at slightly lower levels from overnight highs despite the US Dow Jones Industrial Average powering to a new high on the year.

The only US data on the radar is the US weekly confidence data a bit later, though the Fed's Yellen and Fisher are both out speaking on the US' economic outlook and we have a 10-year treasury auction today. The Asian session gets a bit more interesting with Australian consumer confidence data and a raft of data out of China. There is an interesting article over at the Wall Street Journal discussing the quality of China's growth and whether credit's involvement in the latest phase of growth is a dangerous thing. "In China's Growth Story, Credit as Villain?"

Remember that tomorrow is a bank holiday in the US: equities will be open for trading, but banks and government fixed income will not be trading.

Chart: EURJPY
A new four-day high was rejected today and interest rates have ticked sharply lower, suggesting there could be more downside pressure for the shortest term on JPY crosses.

Published on  Tue, Nov 10 2009, 15:16 GMT