AUDJPY, burn up on re-entry

Monday, April 04, 2011

You would think that the balmy summer weather that hit London this weekend has permeated the general mood of the financial markets. Risk on in general, equities buoyant, and our only care in the world is who speaks next at the Fed. But as we mentioned last week we think the market is getting a bit too over excited about US rate rises. Mr Dudley started to swing things back to the dove camp on Friday but today we have the leader of the hawks, Big Bad Beardy Ben billed for later. (As an aside, every time anyone mentions Dudley, TMM can't get Mr Dudley from the the Little Britain sketches out of their minds. In that analogy, who is Ting Tong? The US economy?).

One of the biggest and most obvious winners of the USD rates up trade has been USDJPY which has seen the market getting even more excitable as it perceives an option driven black hope in the 85.00 to 90.00 area which will suck in all those venturing near. Basically, we think the market is now fairly well positioned for an up move so the pain trade would be back below 83.50.

Elsewhere, TMM are starting to think that they have seen a top in more than just copper. Colour from physical traders in China is indicating that rate rises in onshore markets are forcing a lot of inventory financing deals to be unwound and physical copper is hitting the market, we are now hearing similar stories about Zinc too. TMM are of the opinion that as long as China rates are rising and fixed asset investment is being slowed that it will be very hard for industrial metals to continue their march upwards even if the markets appear tight. Which then leads us on to think about the AUD. There is an awful lot going for the Aussie, but if we are looking for metals to top then shouldn’t we be expecting AUD to roll too? That AUD vs Base metal commodity index chart is starting to show some interesting divergence.

And putting the above 2 thoughts together shouldn't AUDJPY see a pull back? It's managed a 17% rally from its post Earthquake lows now certainly looks like the tightest wound of the Aussie elastic crosses if there is to be a snap back.

As we are a bit bored we think AUDJPY may well be an interesting sell on the sidelines to liven up our otherwise dull day.

Posted by Polemic at 12:03 PM  


Cheers, TMM. Blood has just now re-entered my alcohol stream. Ha, LB thought the post said "bum up" not "burn up". Still getting my sea legs here, third continent in five days.

Agree 100% on the likelihood of a retracement for AUDJPY and especially USDJPY. Low 80s would definitely be Cold Steel for enthusiastic yen shorts.

Goldie downgraded Q1 US GDP today, their bond desk must have been underwater after the last Tsy auction. Anyway they ran my stops, so thank you, VERY BLOODY MUCH....

We don't talk individual equities here that often, but CIM is on sale today after going ex-div last week, so especially if you do NOT believe that the long end will breach a 5% 30y any time soon, like this decade... and if you fancy that 17% yield.... nah, who wants that when you can own gold,


* We own CIM and have recently refilled our boots therewith.

Leftback said...
5:04 PM  

The Aussie is looking mighty vulnerable at these levels with global commodities taking a breather, but then again, copper is still above 4 USD/lb so arguably it could also just be setting up a melt-up to 5ish.

I hear global equity strategist talking about a re-rotation into EM (India saw a nice net bid from foreign investors in May according to my analysis) so it might not be over just yet.

Also, I agree on the USD/JPY ... I am not buying that rally just yet!


CV said...
5:19 PM  

A look ahead to US data...

April 11 - Alcoa earnings
April 13 - 10y auction
April 14 - PPI
April 14 - 30y auction
April 15 - CPI

To me this lot has BEAR WEEK written all over it.
Not this week, plain sailing....

Is this the quarter that Alcoa dumps the market? Or do we get through that into the nasty numbers later next week?

Leftback said...
5:36 PM  

A quiet day, so here are some thoughts on inequality. Inequality has been enhanced and exaggerated by the Fed's programs, before, during and after the crisis. The Bananamerican economic recovery continues to percolate, but only for 1%.

Apologies in advance to those who don't like to think about the other 99%, and to those who prefer not to think at all.....

Stiglitz on the 1%

leftback said...
7:30 PM  

That's almost poetic, who wants to own Gold when you can roll your dice on something called Chimera Investment Corp. which is a buyer of RMBS...

Buy on rumour, sell on news of the ECB rate hikes Thursday. Ongoing troubles with the Cajas seem to indicate a growing problem beyond the Iberian Green Line.

Anonymous said...
7:33 PM  

What if there is no ECB rate hike on Thursday after all? Big dollar rally waiting in the wings?

Leftback said...
9:03 PM  

Right LB, but that is wishful thinking I suspect. It is basically pre-announced and with the latest inflation print ...

But yes, it would be beautiful short squeeze :)

CV said...
9:24 PM  

Maybe so. Surely it is yet another ECB policy mistake? Why not let high prices be the cure for high prices? But, no, central bankers cannot resist the temptation to play God.

The ailing peripherals are not going to enjoy this, eh, Claus? Although, if there is no longer credit extended, how can there be a crunch?

Leftback said...
10:00 PM  

I agree, AUD looks like its priced to perfection. However dollar rally will be capped untill the budget problems are settled.

GOP threats of government shutdown is a danger on the horizon. However CFTC data shows that dollar shorts has been cut down a notch last week.

Intrinsic said...
11:13 PM  

Definitely a policy mistake if there ever was one and it could ignite a new bout of Eurozone woes.

In any case, Portugal is a non-event as I see it and surely headed for receivership. No, the big issue is Spain and how much it will cost the Euro group to bring her back on the right track.


CV said...
7:46 AM  

Those Yen'x maybe entering a short term hostage situation , relative to the majors.....perish the thought.

FX said...
7:57 AM  

At 88.50 this looks like a badly timed call... are you looking to short more AUD at these levels?

Entre said...
7:59 AM  

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