DAILY MACRO
Markets dazed by Japan`s FX punch.Given the risk averse tendencies of contradictory policies ( tightening through monetary policy & easing through bond buying in case of ECB and easing the rates with ultra loose monetary policy & tightening with intervention by Japan) , the credibility of policy making is another key factor that would keep Dollar strong .
Tokyo wanted to break the cycle of an ever-higher USD/JPY, even though Japan’s policy of effectively draining liquidity with JPY buying operations is at odds with the BoJ’s ongoing JPY-liquidity add through its various QE programmes.Japan probably hopes to slow USD/JPY – rather than actively seek reversal of dollar uptrend.
SNB raised interest rates by 75 bp to 0.5%, ending seven-and-a-half year experiment with negative rates with introduction of reverse tiering on sight deposits.That “does not help” swiss franc,
EZ inflation to rise, and price pressures persistent - ECB.Surging EU-US yield spreads weigh, 10yr bund +8bp 1.978%, 10yr UST +20bp.Asian 0.9807 low & London 0.9908 top to initially contain .
USD/CNY rises to 7.0930 from close 7.0825;PBOC fix much lower than forecasts again at 6.9920.Puts top side of daily trading band at 7.1318
GBP is a lead baloon -- bulls (are there any ? ) gutted after 50bp- BoE hike. GBP/USD rose to 1.1365 into BoE rate decision. BoE`s rate hike vote was split three ways - MPC newbie Dhingra voted for 25 bps; Ramsden, Mann & Haskel for 75 bps.Tepid BoE hike path & fiscal hole keeps risks to downside.Kwarteng to come out with expensive policies. Consumer mood sinks to new depths despite energy bills help.Yesterday`s 1.1213 ( 37 year low) to hold for now -Mar 1985 lows by 1.1060, 1.0805 and 1.0520 to come into focus once it breaks.Tough to cross 1.1365 .
It appears that Japan averse to seeing a very quick dash into 150.USD/JPY fell near 5-1/2 big-figures in 1-1/2 hours.Tokyo holiday - markets unlikely to test BoJ`s resolve .London post intervention 143.40 high is key resistance 140.31 intervention low is key. Weekly close abv 50% Fibo 137.61-145.90 at 141.76 to signal 155.00
Meaningless defence gave up. complacency that USD/INR will not sustain above 80.00 fuels upside momentum. Lot more to go on the upside . Incidentally in the last 25 years - any break of round big figure has always been associated with a fairly large move ( 46.50, 58.30, 68.80 ,74.40 ). First it cant happen to us denial phase -and then an acceptance and a meek capitulation - This time can`t be exception - so 87.93 now ? CAD seen ballooning to $30.5 bio -largest on record. For now 81.65 next.