JPY: Asia Wrap - USD/JPY Drifts Lower After Filling In The Monday Morning Gap
The Asia-Pac USD/JPY range has been 147.16-147.58, Asia is currently trading around 147.20, -0.20%. USD/JPY could not hold onto the gains it made in early Asian trading yesterday and ended up filling in the gap. The support towards 146.00 comes back into view, it has been solid for most of July and August, can it continue to hold as the USD’s own support begins to look precarious. CFTC data shows leveraged funds again added a decent clip to their short JPY position last week so the inability for the price to extend yesterday would be disconcerting, a move back below 145/146 is needed to potentially start seeing these positions being flushed out.
- Value Seeker on X: “The Japanese Yen remains highly undervalued relative to most currencies, including the US Dollar, which trades 50% (3 st. dev.) above its purchasing power parity against the Japanese currency.” See Graph Below.
- Bloomberg - “Japan’s Kono Says BOJ Needs to Hike Rate to Fix Yen, Inflation. The Bank of Japan should raise its benchmark rate to support the yen and curb inflation, Liberal Democratic Party lawmaker and former digital transformation minister Kono Taro said, as political uncertainty clouds the outlook for economic policy.”
- "KATO: MULL IMPACT OF TARIFFS, OPPOSITION VIEWS FOR ECO PACKAGE, PRICE RELIEF IS NEEDED TO PROTECT LOW-INCOME HOUSEHOLDS” - BBG
- "JAPAN LDP DECIDES TO HOLD 'FULL-SPEC' LEADERSHIP VOTE: NTV" - BBG
- Options : Close significant option expiries for NY cut, based on DTCC data: 147.00($931m), 147.50($521m).Upcoming Close Strikes : 145.75($1.12b Sept 11), 150.00($1.11b Sept 11) - BBG..
- CFTC data shows last week asset managers again added to their JPY longs after a consistent period of reduction +78427( Last +76761), leveraged funds though again used the dip to add a decent clip to their newly built short JPY position -66914(Last -52275). One of them is going to be wrong.
Fig 1 : JPY Undervaluation Vs USD(based on PPP)
Source: MNI - Market News/@ValueSeeker_/OECD
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AUSSIE 10-YEAR TECHS: (U5) Recovers With Treasuries
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.710 @ 14:34 BST Aug 8
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures received a boost from the US Treasury rally that followed a poor NFP print. This keeps Aussie 10-year futures toward the top end of the recent range. To the upside, next resistance is at 96.207, a Fibonacci retracement point. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
SECURITY: Trump To Sign Trilateral Peace Accord With Armenia/Azerbaijan Shortly
US President Donald Trump is shortly due to sign a trilateral peace agreement with Armenian Prime Minister Nikol Pashinyan and Azerbaijani President Ilham Aliyev at the White House. LIVESTREAM The event will provide another opportunity for Trump to style himself as peacemaker, after touting success in brokering peace deals between Rwanda/Congo, Cambodia/Thailand, and India/Pakistan.
- The accord aims to resolve a decade-long dispute over the sovereignty of Nagorno-Karabakh - a breakaway Azerbaijani province that was under de facto Armenian control from the dissolution of the Soviet Union until a 2020 war.
- Trump described the meeting on Truth Social as a “historic peace summit,” noting that the US will also sign “Bilateral Agreements [to] fully unlock the potential of the South Caucasus Region.”
- White House spokeswoman Anna Kelly told reporters that Trump would sign deals with both Armenia and Azerbaijan on energy, technology, economic cooperation, border security, infrastructure and trade.
- A White House official said: "It's about the entire region, and [the leaders] know that that region is known to be safer and more prosperous with President Trump."
- Reuters reports that the US will have development rights to build transportation links in the strategic Zangezur Corridor, a mountainous stretch of Armenian territory between Azerbaijan and its Nakhichevan exclave.
- Politico notes: “But whether this is just a photo opportunity or a lasting end to a conflict that has undermined stability in a region dominated by Russia and Iran will depend on whether the US can address several key challenges.”
FED: Balance Sheet Runoff Continues At Steady $20B/Month Pace (2/2)
Fed asset holdings were little changed in the past week. SOMA runoff totaled $2.8B (composed of $4.2B less nominal Tsy holdings and $1.4B more TIPS), with emergency lending/liquidity facilities $0.7B lower.
- Over the last 4 weeks, the $20B/monthly expected QT pace was roughly adhered to: MBS fell $18B, with Treasury net holdings down around $2B (a fall in TIPS holdings offsetting a slight rise in nominals).
- Discount window usage accounted for the fall in lending facility usage this week; takeup is now down to $4.9B, down $1.3B in the last month and down from the 1-year high of $6.4B set in July which looks to have been a temporary blip higher.
