Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

China's GDP May Threaten Yen Carry Trades

Currencies / Yen Carry Trade Apr 18, 2007 - 10:53 PM GMT

By: Ashraf_Laidi

Currencies

Going into Thursday's trading, FX traders will watch the return of major economic data from the US and Canada. But before previewing these events and their FX implications, it's worth giving synopsis on what happened in the NY session. There are some doubts about the durability of the carry trade (selling yen across the board simultaneous with rising gold and equities).

We have seen in early morning NY (around 8-9 am EST) how the yen rallied across the board, dragging the dollar, pound and euro. Rumors of a hedge fund caught in the wrong side of the rising pound and as well as rumblings of renewed reports of sub-prime defaults also led to some unwinding, which caused US stocks to open lower. With US equities struggling into record territory, a loss of momentum could easily turn into sharp selling in the event of a weak reading in the leading indicators and Philly Fed index.


Tomorrow's March CPI report from Canada (7 am EST), US weekly jobless claims (8:30 am), March US leading indicators (10 am) and the April Philadelphia Fed survey (12 pm) will be highly scrutinized. But before all this, stay tuned ahead of China's Q1 GDP due at 11 am EST. See details below.

USDJPY: Running out of Carry. Watch Chinese GDP at 11 pm EST

Our forecast of 120 yen failed to materialize as the rise in USDJPY gave out at 119.85 before the pair started looking increasingly shaky on a combination of general deterioration in USD sentiment--brought about by the 26-year lows against the pound sterling and soft US inflation maintaining the case for a 2007 Fed easing. Rumors of a possible Bank of Japan rate hike as early as May did manage to boost the yen.

The 4-hour chart shows the declining channel has a resistance at 118.65-70, where the pair topped out in late Wednesday afternoon NY trade. The prolonged decline towards the 118.50s could open the door past the 118.53 support, until the next key target of 118.09 -- (Wednesday low), which is both the 38% retracement of 115.2-119.87 move and just above the 200-day MA. A clear break of the 200 day means a breach below 117.90, which clears the way for 117.54 -- 50% retracement of the said move.

What about tonight's release of China's Q4 GDP? The report is due at 11 am EST and is expected to show a figure of just below 11.0%. The reaction in FX and commodities markets shall depend on the reaction in Chinese equities. If the report proves weaker than expected (below 10.6%), then worries of a China slowdown could impact Chinese equities negatively, in which case could weigh on commodities and accelerate the unwinding of carry trades, thus, boosting the yen, and helping the US dollar against the Canadian, Aussie and sterling. Nonetheless, if the report is interpreted to show continued overheating in China (a report at above 10.8%), then markets will fear the People's Bank of China will have to undertake tougher measures in tightening policy, which may also weigh on Chinese indices.

With Chinese equity markets trading near record highs, the Dow already at record and European indices at 6-year highs, the risks of an international slide could well materialize today.



USDCAD: 1.1267 Trendline Support Depends on Core CPI

After briefly regaining the 1.13 figure top 1.1337 on weak shipments data, USDCAD pursued its sell-off to fresh 5-month lows at 1.1267, touching the 11-month trend line support. A key catalyst in influencing the CAD's next move will be the 7 am EST release of March CPI, expected up 2.0% y/y, matching the February figure.

But the more important figure will be the core CPI (excluding 8 commodity items), which is expected to have slowed to 2.3% y/y from 2.4% y/y in March. In the event that core CPI grows by at least 2.3% and the headline CPI remains at least at 2.0%, then markets drag USDCAD below the 1.1270 figure towards the interim support of 1.1250 and 1.1220 on the rationale that the inflation is uncomfortably high for the Bank of Canada. Any upside potential in the pair is seen capped at 1.1345-50.

It is important to note that USDCAD often rises on during unwinding of carry trades emerging from hedge fund troubles or renewed reports of sub-prime defaults. A core CPI of at least 2.3% coupled with US weekly jobless claims above 330-335K, may extend the decline in USDCAD. We do not expect the leading indicators index to be a market mover unless it shows a rise of more than 0.3% or 0.4%, or another decline, following the 0.5% fall in February. The key figure will be the Philly Fed index due at noon, expected to rebound to 2.0 from 0.2.

By Ashraf Laidi
CMC Markets NA

Ashraf Laidi is the Chief FX Analyst at CMC Markets NA. This publication is intended to be used for information purposes only and does not constitute investment advice. CMC Markets (US) LLC is registered as a Futures Commission Merchant with the Commodity Futures Trading Commission and is a member of the National Futures Association.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in