07.06.2013 The Big Picture Yin-yang yen: Using a Chinese concept to describe the Japanese currency may seem like cultural funambulism but the truth of the matter is that the yen has seen overstretching on either side. On the yang side we had a USD/JPY rally on expectations that Abenomics and the BoJ’s revamped stimulus package will consequently lead to yen depreciation in an attempt to spur inflation, driving the currency into prolonged overbought levels on both the RSI and the Stochastic Oscillator. On the yin side, we had disappointment this week about Abe’s timeline for tax cuts and deregulation reforms with Finance Minister Aso stating today that the government doesn’t have any “immediate intention” of intervening in the currency market, despite the biggest yen gain versus the dollar in three years, leading the pair to oversold levels. The decreasing speculation that the Fed will start tapering off QE over the next few months, the winding down of carry trades, and the recent plunge in stock indices globally, with the Nikkei plummeting more than 20% from the five year high it reached two-weeks ago, have weakened the dollar and boosted the yen. Yesterday’s technical breakdown from the significant spike support trendline which held since the start of the rally in November and the coinciding move below the 50-day MA and the 23.6% Fibonacci retracement level of the 6-month up move led to a series of margin calls and stop outs feeding the USD/JPY crash. The UK visible trade deficit is expected to narrow slightly in April to GBP 8.8bn from GBP 9.06bn in March, with the total trade deficit (including invisibles) narrowing to GBP 3.0bn from GBP 3.13bn. Whether that will be enough improvement to boost sterling further remains to be seen. The simultaneous release of the BOE/GfK inflation expectations survey carries no forecast. German industrial production for April is forecast to be unchanged mom, a decline from +1.2% in March, but this would bring the yoy rate of change up to -0.7% from -2.5%. Undoubtedly, however, the biggest figure of the week, if not the month, is the US non-farm payrolls for May. The market is expecting similar data to last month, with surveys showing a median of +163k to +170k, with the unemployment rate holding steady at 7.5%, despite some improvement in jobless claims, which have not been matching up that well with NFP recently. The +165k NFP figure and the unemployment rate were considered good last month, especially the latter which saw a decline from 7.6% in March and the recent peak of 7.9% in January. Nonetheless some mutterings have been heard about the exceptionally low participation rate, which was in March and April at a 35-year low of 63.3%. Average hourly earnings are also expected to remain at 0.2% mom. Did people just re-submit the same forecasts for lack of any better ideas? No, average weekly hours are expected to rise a bit to 34.5 from 34.4 as the weather improved from the unseasonably cold April. Market impact from the figure can be considerable, as this is the key indicator for Fed policy; anyone with a position ahead of this number is betting that they are better at forecasting than Wall Street professionals, whose poor record at forecasting shows how difficult it is, not how bad they are at it. That said, risk seekers may want to note that the forecasts made the past 3 days are significantly different from the overall estimates. The consensus amongst 15 economists who were surveyed the past three days reveals a mean of +156k and a median of +145k, the former 5% less and the latter 11% less than the overall forecast made by all 90 economists surveyed by Bloomberg. It is left to be seen whether these more recent estimates will prove more accurate or subject to cognitive biases due to the recent stream of negative U.S. data.
Posted on: Sun, 09 Jun 2013 01:13:26 +0000
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