IFR Markets ForexWatch Asia Regional Daily Briefing – Reuters

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SYDNEY, May 23 (IFR) –

U.S., Japan disagreement on yen moves overshadows G7 meeting

* Japan Aso says recent yen moves are disorderly, one-sided

* U.S. Lew says ‘high bar’ for yen to be considered disorderly

* Europeans show little concern over recent FX moves

* Japan fails to gain consent for joint G7 fiscal action

Nothing much was expected from the G7 meeting and nothing much was delivered
with countries adopting a ” Go your own way” approach on policy matters.
G7 leaders called for a mix of monetary, fiscal and structural policies to boost
demand but left it to each country to decide its own policy priorities.
The meeting highlighted the growing difference of opinion between Japan and the
U.S. as to what constitutes “disorderly” markets.
Treasury Secretary’s Lew’s characterization of currency moves as “orderly” was
met by equally strong assertions to the contrary by Japan’s Finance Minister
Mr.Aso noted that recent dollar moves of 5 yen in two days and 8-9 yen in 10
days cannot clearly be termed as ” orderly” : reut.rs/27L3fyc

An immediate impact from the G7 meeting on markets is highly unlikely as
volatility on USD/ JPY has subsided for now rendering the U.S-Japan contentions
moot. But it is likely to become a prickly issue if a rapid move of 8 to 10%
especially towards the psychological 100 JPY level is seen. Any Japanese
reaction to such a move especially if it elicits a U.S response could lead to
fairly volatile trading conditions.
In this context, here is a link to an interesting article from Behind
Japan’s FX intervention threats, a calmer view of the yen : reut.rs/27L3fyc

UK “Remain” camp gains ground in EU poll, bookmakers lengthen Brexit odds
Remain” takes 4-point lead in latest Opinium/Observer poll; poll marks 6th out
of 7 this week to show lead for “In” camp; Ladbrokes, William Hill cut odds for
Reuters Special Report: Floating voters may hold key to Britain’s EU future : reut.rs/1s1A4GL

The week ahead:

Central banks and bankers to the fore
Speeches from central bankers will come under intense scrutiny as financial
markets attempt to pinpoint the timing of rate moves from the major central
The usual parade of Fed speakers will be on full display with Bullard at the
vanguard delivering 2 speeches in Beijing and Singapore. We also hear from
Williams, Harker, Kaplan, Kashkari and Powell.
Yellen appears at a panel event hosted by Harvard University on Friday which
will be followed by a Q&A from the moderator. The market will be all ears for
any hint of a more upbeat Fed chair.
Markets were jolted on her previous appearance on Mar 29th when she sounded
cautious / dovish on the economy contradicting hawkish comments from several of
her colleagues.

Yellen makes a more formal appearance in Philadelphia on June 7th and this will
probably offer her a better stage to guide market expectations.
On Tuesday, RBA Governor Stevens makes his first appearance since the May 3rd
interest rate cut which was followed by a dovish SOMP and tepid wages data. The
minutes of the May meeting revealing that the rate cut was a close call and last
week’s Sydney property auction clearance rate which soared to 80.3% from 71.6%
the previous week have stirred debate on the need for, and the likely timing
of, another RBA rate cut. Financial markets will be keen for any guidance from
Stevens to gauge the extent of RBA’s dovish stance.
Bank of England’s Governor Mark Carney is likely to appear before UK
parliament’s Treasury Committee to discuss the May Inflation Report.
European Central Bank Chief Economist Peter Praet speaks in Madrid. Praet, a
noted dove, had signaled recently that no other easing measures should be
expected in the near term- a theme which has increasingly resonated with more
ECB policy makers as they join the ranks of the ” wait and see” camp.
Bank of Canada meets Wednesday and is widely expected to keep interest rates
on hold.
In EM, central banks of Israel, Kenya, Turkey, Hungary and Ukraine hold their
monetary policy meetings

Data releases
A moderately busy week for data releases.
In the US, Markit PMI surveys and Durable goods on Monday and Thursday will be
followed Friday by the more important Q1 GDP ( 2nd estimate) and the
preliminary reading of PCE prices. In an indication that growth in the first
quarter was not as bad as perceived, Q1 GDP is expected to be revised up to 0.9%
from the initial 0.5% .If borne out, it will be a further fillip for the hawks
in the FOMC as growth in Q2 appears to be firmly on track.
A breakdown of U.K first-quarter GDP due on Thursday will be watched for any
signs of a “Brexit” impact on business investment.
PMI indexes for France, Germany and the euro zone due out on Monday morning are
expected to show steady if not stellar growth in business activity. Of note from
Germany will be Tuesday’s detailed report on Q1 German GDP and the ZEW economic
sentiment followed by the IFO Business climate reading on Wednesday.
A relatively quiet data week for Asia with Australia’s Capex on Thursday and
Japan’s CPI on Friday the main focus. Any dearth of a pick-up in spending
intentions in 2016/17 Capex will further reinforce dovish RBA expectations.

Political events
Euro zone finance ministers meet on Tuesday in their latest attempt to forge a
tentative plan on measures that will allow Greece’s debt to be re-profiled”-
less interest, longer maturities, limits based on growth etc. The EZ needs to
balance the interests of its members which compete with the IMF’s desire that
euro zone countries agree now to extend the grace period on all their loans to
Greece until 2040 and their maturities to 2080 with a fixed interest rate until
Greece parliament will vote on tax hikes and reforms demanded by its
international lenders on Sunday.
Austria votes in second round of the presidential election on Sunday which is
expected to be a close race. The election could result in the European Union’s
first far-right head of state with support for Freedom Party candidate Norbert
Hofer buoyed by a migration crisis that has heightened fears about employment
and security.
Turkey’s Transport Minister Binali Yildirim , a close ally of President Erdogan
for two decades, will be the sole candidate for the AKP leadership and therefore
the next prime minister at a special party congress on Sunday. AKP sources have
said a new cabinet could be announced as early as Monday. Investors will be
watching for any changes in the economic management team. The Turkish central
bank which has cut its overnight lending rate by a total of 75 basis points in
its last two meetings meets Tuesday and is under increasing pressure to make a
series of interest rate cuts.
The G-7 summit takes place in Japan on May 26-27.

CFTC data : Speculators cut short dollar bets on upbeat U.S. economic data.
Net spec short in EUR pauses its steady decline begun in March
Short now 22,587 versus previous week’s 21,872
In commodities FX, AUD long extends slide, now lowest since early April
CAD long snaps steady increase; NZD long dip
GBP short turns back higher
Chart: reut.rs/1cQIzMp

Synopsis of past week’s currency performance

Currency 13 May 20 May Change
GBP 1.4358 1.4504 1.02%
DXY 94.61 95.33 0.76%
NZD 0.6766 0.6766 0.00%
AUD 0. 7268 0.7225 -0.59%
EUR 1.1313 1.1223 -0.80%
CAD 1.2942 1.3114 -1.33%
JPY 108.65 110.22 -1.45%
CHF 0.9754 0.9901 -1.51%
GBP lead the pack last week boosted by 6 polls in 7 showing a lead for the “In”
camp and with two major bookmakers cutting their odds on Britain remaining in
the European Union. The Dollar Index enjoyed the spell of upbeat U.S. data and a
an orchestrated effort by Fed governors to boost rate hike expectations. CAD was
the underperformer in commodity space as it caught up with the weakness in its
commodity cousins amidst concerns over the impact of the Alberta wildfire. NZD
held up relatively well as expectations of a RBNZ rate cut in June remain
equally divided. The JPY and CHF languished at the bottom on paring back of
extended long currency positions on heightened Fed rate hike expectations. In
the case of the JPY , the move has been accentuated by the almost constant and
strident threats of intervention by Japan’s officialdom

Market themes in the week ahead
The reappraisal of Fed rate hike expectations is likely to see a continuation of
the themes that dominated trading last week. This should lead to a well
supported ratchet higher on the dollar as it settles into a range trade on a
higher plane, continuation of weakness in the base metals led by Copper and
choppy trading on Wall Street and other global stock markets with a slight
negative bias. Investor caution is bound to rise with the advent of June as we
head towards major events in the second half of the month ( BOJ, Fed, Brexit).
The current disparate nature of trading is highlighted by BAML / EPFR data
which showed that ” risk-off flows” from stocks resulted in $5.8 billion
leaving equity funds in the past week, the 6th straight week of outflows, for
the safety of bonds and precious metals ; this, while the “safe- haven ” JPY and
CHF were the hardest hit on FX. A market that is still long AUD and the
shrinking premium between Australian and U.S. two-year cash bond yields which
dropped to its lowest in 15 years to 71 basis points on Thursday due to
divergent central bank rate expectations will continue to pressure the AUD
though a clear slowing of downside momentum is evident as we approach the next
target of 0.7150.

Technical levels in brief

AUD/USD ( 0.7220) : A loss of downside momentum on the approach to 0.7150 Wave
equality objective signals a period of 0.7150-0.7400 consolidation to alleviate
the oversold conditions. This will provide an ideal platform for the next leg of
the decline to 0.7065 and 0.69 75-85. Only above 0.7445-55 threatens medium term
stops of 0.7560.

DXY ( 95.27) : The break and weekly close above the 95.05-20 resistance band is
positive and should result in a ratchet to the next resistance of 96.20-40.
Minor support at 94.40, stronger support 94.30. Loss of latter signals a return
to consolidation / range trade.

USD/ JPY (110.22) : The weekly close above the 109.39-74 former resistance
turned support is positive indicating an eventual move higher to 111.90 .
Pullbacks to find support at 109.30-40 followed by strong support at 108.75-85.
Below 108.20 concerns, below 107.45-50 aborts.

Copper ($ 4578): The clear break and weekly close below the double- top neckline
at 4630 is bearish. A decline to test 4510 and a move to 4430 is indicated.
Reactions should now hold below $4630-40 as the down move develops. Failure to
do so signals a false break and a return to consolidation, hence stops on
bearish view to be placed at $4670.

(Reporting by FX analyst Krishna Kumar, IFR and NY buzz team)

IFR Markets ForexWatch Asia Regional Daily Briefing – Reuters}