FOREX: USD Rally Backed Up by Yields, But Conviction Low into Fed Meeting
- The USD rallied against all others Friday as markets backtracked a small part of the spell of weakness that followed Thursday's weekly jobless claims print. While equity markets were generally stable outside of a phase of selling through the European open, Treasuries faltered throughout Friday trade, providing a further tailwind to the greenback.
- That said, EUR/USD weakness failed to make any headway back below the 1.1700 handle as markets saw the first ECB governing council members speak after the Thursday rate decision. The divide among the council was clear, with Villeroy raising the possibility of further easing measures ahead, while both Kazaks and Simkus were less convictive in their approach.
- USD/JPY rallied well, while EUR/JPY remained inside the broader uptrend. A Kyodo news poll showed Thatcherite MP Takaichi leading opinion polling for the leadership race in the LDP (and thereby next PM of Japan). Her well known stance for fiscal spending as well as her recent criticism of the BoJ's rate hiking plans worked against the currency, keeping resistance into 173.91-97 intact for the EUR/JPY cross.
- Focus in the coming week shifts to the Fed rate decision. A 25bps rate cut remains fully priced, with not insignificant pricing for a 50bps step. This week's inflation data endorsed easing at this juncture, but there remains uncertainty around the magnitude of this rate cut step. Either way, the FOMC will be well aware of the scrutiny over their decision in the Oval Office.
- Outside of the Fed decision, UK inflation data and the Bank of England rate decision cross. Markets expect CPI to remain stubborn - keeping the MPC on hold into year-end. Just 9bps of easing are now priced through December, a series low, which is helping GBP/USD hold above the 1.35 handle. Horizontal resistance is seen layered between 1.3590-00, clearance above which will conclude the early September corrective move lower.
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JGBS: Rakuten Bank Stepping Back From JGB Buying
From a little earlier this afternoon "Rakuten Bank to Refrain From JGB Buying as More Rate Hikes Seen" Bloomberg
From the story: "Rakuten Bank Ltd. will likely hold back from actively buying Japanese government bonds until the central bank raises interest rates again, in the latest sign that an uncertain policy outlook is weighing on investor sentiment."
"The lender, a unit of Japan’s e-commerce giant Rakuten Group Inc., has seen its total deposits almost triple from five years ago to ¥11.7 trillion ($79 billion) at the end of June, as its online banking services attract more customers. While the deposits are dwarfed by those of Japan’s biggest lenders, Rakuten Bank’s fast-growing cash pool is pushing it to look for investments".
Comes against a backdrop of ongoing concerns around JGB liquidity and structural demand. Yesterday, the 10-year JGB went untraded for the first time in two years.
FED: US TSY 17W BILL AUCTION: HIGH 4.050%(ALLOT 41.13%)
- US TSY 17W BILL AUCTION: HIGH 4.050%(ALLOT 41.13%)
- US TSY 17W BILL AUCTION: DEALERS TAKE 28.74% OF COMPETITIVES
- US TSY 17W BILL AUCTION: DIRECTS TAKE 5.29% OF COMPETITIVES
- US TSY 17W BILL AUCTION: INDIRECTS TAKE 65.98% OF COMPETITIVES
- US TSY 17W BILL AUCTION: BID/CVR 3.50
OPTIONS: Larger FX Option Pipeline
- EUR/USD: Aug15 $1.1590-10(E1.3bln); Aug18 $1.1560(E1.1bln); Aug19 $1.1620-25(E1.7bln)
- USD/CAD: Aug15 C$1.3910($995mln)
- USD/CNY: Aug15 Cny7.5000($1.7bln)
