Commodity currencies have divorced from commodity prices as the transmission mechanisms that used to drive correlation have abated. This has implications for FX trading and Canadian inflation.
Like sundried tomatoes, the term “excess savings” was trendy, then forgotten. Now, the narrative around the depletion of excess savings may be set to re-emerge. Plus: China’s gold buying flood slows to a trickle. And: trading USDJPY is hard.
The turn in the US data should push the dollar lower as the market repriced the combination of weaker data and dovish Fed reaction function.
There has been a notable change in the tone of the data recently as we have moved from stonking disinflationary boom to possibly-troubling softness on the demand side. And Cathie keeps on being Cathie.
The pre-NFP equilibrium zone 152.75/153.25 should now be the sell zone for USDJPY.
There is enough softness in US data to raise eyebrows. But not enough to conclude that anything has changed. Yet.
Today’s FOMC meeting looks binary. If hikes are back on the table, the large long USD position probably doesn’t matter as FI vol will spike and the dollar can keep running. If Powell nixes the hike side of the distribution, the USD will get thumped.
When a headline asks a question, the answer is usually no. The financial media is touting a “Japanese currency crisis”, memes are going viral, and The Economist is chirping in on why the MOF is doomed to fail. At the risk of staying wronger for longer, this could be the final innings of the yen trilemma debacle.
The Japanese Ministry of Finance showed up, but they seem to be doing as little as they possibly can to support the yen without actually doing nothing. When looking at correlations, don’t get too excited over r-squareds.
Specs have been exiting GBP shorts and putting on AUD longs. Chinese copper import premiums are at an all-time low – bearish copper.
Taking one more shot at short USDJPY, even though I got stopped out of the EURJPY short. Because all signs point to BOJ intervention, in my eyes.
Significant-looking tops in commodities may signal that we are near or past the peak in the inflation reacceleration narrative—and US yields.
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