This morning, as soon as Asia opened, the JPY reversed losses and regained ground as Asia equities crashed again (with the exception of China growing a modest 0.2%). This occured following the crash of oil prices to the $30 mark. In short the recoveries of yesterday (over 300 pips were wiped out and an additional 80 pips of losses added). Surprising was that the JPY has did not strengthen even further, as risk appetite should have been at ultra-low levels at this point. I guess the only positive we can take from this is that the JPY has not fallen further, when it was given every opportunity to do so.
In the European session, things looked slightly better and the JPY reverted to opening lvls vs the USD, which was good news for us, but then UK production data disappointed and the Sterling fell to its weakest level in 10 years. What concerns me about this, is that these figures directly contradict the impression that the BOE was championing all of last year. It really makes no sense, and I am interested to see if Carney has anything to say later today or in this weeks BOE minutes.
Looking at the median forecasts from institutions on Bloomberg; I can see the Q1 2016 median estimates for USDJPY are at 1.23 and for USDCHF are at 1.03, not far off our expectations for 124 and 1.04 respectively. This is small comfort though as the market panic is now persisting into a third week and as I feared last week it may last until Chinese GDP is released on 19th. Chinese trade data due on Wednesday will be mixed in my opinion, as of course if we look at the absolute value, then yes it will have a smaller dollar value due to the fall in oil and commodity prices. Naturally many people will just look at this dollar value and panic initially over growth concerns. However, I think a more important indication of growth is their VOLUME of imports, rather than value and if this number shows improvement, then we should be out of this mess very shortly.
There are many doomsayers making headlines (some established people and others trying to make a name for themselves) by predicting that the world economy is on the brink of collapse etc. I find it interesting that every time equities take a tumbling, these people emerge and say the same thing (think of August 2015, November 2015). I however prefer to put more trust in the statements of the central bankers who make the policies that effectively govern monetary rates. And what these officials have said so far has been encouraging despite the negatives in the market:
Yesterday, FED’s Lockhart started that the equity turmoil is not expected to hurt the US economy. He specifically said “When such volatility develops, I think it’s helpful to look at the real economy of the United States as opposed to the financial economy and ask if something is fundamentally wrong.”
In addition, this morning, FED’s Kaplan, a dovish member, announced expectations for four of five rate hikes in 2016. This in in contrast with market expectations for two. This shows that the FED is becoming more and more hawkish compared with months earlier, when they would speak of caution on global growth and gradual increases. I still believe that they will surprise many people by performing a second rate rise in March (which is a LIVE meeting).
USDCHF buy is at about break even, with a target of 1.03
USDJPY buy has recovered well and is faring better, It has a target of 124
GBPCHF buy is reversed the recoveries of yesterday due to cable tanking.
GBPJPY is in the same boat as above.
USDJPY buys are recovering.
USDCHF buy is has its SL 70 pips in the green, and a target of 1.03.
EURGBP sell was recovering till UK data came out and made it lose a further 80 pips. I hold it in the expectation that the ECB will indicate a willingness to do more, but have set an SL at 0.77.