JAPAN: CORRECT: Top Currency Diplomat To Speak Shortly
*corrects London time*
Newswires note that Japan's vice finance minister for international affairs, Masato Kanda, will speak at 13:30 Tokyo/05:30 London.
- This comes after USD/JPY briefly showed above Y145.00 before pulling sharply lower, triggering speculation that the JApanese authorities may have intervened in a bid to prevent further JPY weakness.
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BUND TECHS: (U2) Southbound
- RES 4: 158.33/159.70 High Aug 3 / 2 and the bull trigger
- RES 3: 157.74 High Aug 10
- RES 2: 154.60/156.88 20-day EMA / High Aug 15
- RES 1: 153.70 50-day EMA
- PRICE: 151.31 @ 05:09 BST Aug 23
- SUP 1: 151.03 Low Aug 22
- SUP 2: 150.00 Round number support
- SUP 3: 149.69 Low Jul 21 and key short-term support
- SUP 4: 148.24 Low Jul 1
Bund futures traded lower again Monday, extending the pullback from the Aug 2 high of 159.70. The 50-day EMA has been cleared. This marked a key support area and the clear break has strengthened bearish conditions and signals scope for a continuation lower. This opens the 150.00 handle next. On the upside, initial firm resistance is at 156.88, Aug 15 high. Initial firm resistance is at 153.70, the 50-day EMA.
JGBS: 5-15.5 Year Liquidity Enhancement Auction Goes Well Enough
The latest liquidity enhancement auction covering off-the-run 5-15.5 Year JGBs saw spreads experience incremental widening vs. the previous offering, with the spread tail width remaining narrow. The cover ratio came in at 3.629x, little changed from the previous print of 3.66x, but still firmly below the six-auction average of 4.43x.
- A less urgent need for foreign investors to cover any JGB shorts perhaps limited demand at the auction.
USD: Relative Terms Of Trade Still Moving In the USD's Favor
Relative terms of trade trends continue to favor the USD over EUR and JPY. The first chart below plots the Citi terms of trade proxies for each of these currencies. Whilst the USD measure has edged higher in recent weeks, the EUR and JPY measures continue to trend down. It's also not just price measures that are trending wrong for these economies, but also actual supply. This is obviously a focus point for the EU area at the moment and as we approach the winter months.
Fig 1: Citi Terms Of Trade Proxies for USD, EUR & JPY
Source: Citi/MNI/Market News/Bloomberg
- The second chart below plots the differential between the EU and US Citi ToT proxies, against spot EUR/USD. As we have highlighted previously, the correlation between the two series has strengthened over the past 12 months. The rolling 6 month correlation is only just off recent highs at 72% (versus 80%).
- All else equal, the relative ToT proxy continues to suggest downside in EUR/USD.
- For JPY, the negative terms of trade shock, coupled with record wide trade deficits, has likely helped reduced its sensitivity to broader risk aversion moves, albeit at the margins.
- This year, the USD/JPY correlation with the VIX has been close to flat, but last year it was -37%.
- Relative terms of trade shifts have clearly aided the recent USD's ascent. This support may persist from sometime yet, although focus towards the end of the week will clearly shift to Powell/Jackson Hole.
Fig 2: EUR/USD & Relative Citi EUR-USD Terms Of Trade Proxy
Source: Citi/MNI/Market News/Bloomberg
