In a heavy news day, I was able to speak to one trader earlier, and he was saying how those he’s been talking to have been focusing heavily on today’s action in the yen, largely on the heels of a Goldman note advising clients to short the dollar against the yen.
If you check out the chart (JPY=-FX), you can see that the dollar has surged nearly 10% against the yen since the end of January (largely on expectations of BoJ easing), but dropped sharply in today’s trading.
In the note, Goldman noted:
- Japan’s trade data is improving again – already returning to net surpluses.
- There’s no evidence that the BoJ is going to keep easing, as it originally hinted in February.
- The Fed WILL engage in QE3, weakening the dollar
The trader I spoke to though said that many are scratching their heads because if the Goldman note is truly the reason for the move in the dollar-yen, then why did commodities not move up (oil, gold, silver down)?
The Reuters article below covers a bit of the story…
Euro slammed vs yen, dollar as recession fears weigh
NEW YORK (Reuters) – The euro weakened against the dollar and yen on Thursday after a fall in manufacturing in the euro zone’s two largest economies and in China rekindled worries about global growth.
Manufacturing in the euro zone unexpectedly fell in March, hit by a sharp fall in French and German factory activity, according to purchasing managers’ surveys.
PMI data from China showed factory activity there shrank in March for a fifth straight month, underscoring worries about risks to global growth and driving down risk-friendly currencies such as the Australian, Canadian, and New Zealand dollars.
The reports contrasted with U.S. data showing unemployment benefits dropped to a four-year low in the latest week.
“Today we have returned to the risk-off/risk-on trading dynamic as a result of poor data out of Europe and China,” said Greg Moore, currency strategist at TD Securities. “The data all contributed to this risk-off environment, so we have seen the dollar going back to its negative correlation with risk assets.”
In mid-afternoon trading, the euro fell 0.3 percent against the dollar to $1.31782, but bounced from its overnight low. The euro failed to break through key resistance of $1.33, suggesting a near-term top may be in place.
Against the yen, the euro hit a one-week low of 108.489. It was last down 1.4 percent at 108.720, a far cry from the euro’s near five-month high of 111.43 yen struck on Wednesday.
Analysts said the poor PMI surveys highlighted the risk of a recession in the euro zone, and peripheral debt also showed fresh signs of trouble. <GVD/EUR>
The Chinese PMI data weighed on growth-linked currencies, especially the Australian dollar given the country’s close trading links with China.
The Aussie slid versus the U.S. dollar to a two-month low of US$1.0333, below the 200-day simple moving average of US$1.0399 and the 200-day exponential moving average at US$1.0375.
Barclays Capital recently lowered its AUD/USD forecast path and now expects the currency pair to trade in a $1.04-$1.07 range over the next 12 months. That is consistent with the bank’s technical strategists’ expectations of it remaining in a $1.01-$1.10 range over the next six to eight months.
“We expect high oil prices and signs of weaker Chinese economic activity to keep AUD/USD near current levels over the next month,” the bank said.
Commodity prices, China’s growth, yield advantage, as well as cyclical and structural demand are underlying reasons why AUD/USD will not fall much below $1.04 this year. They are also the reasons why significant appreciation above $1.07 is not expected.
The New Zealand dollar was last down 0.8 percent against the U.S. dollar at US$0.8084, breaching the 100-day exponential moving average, currently at US$0.8096, for the third time in seven sessions on an intra-day basis. New Zealand dollar/U.S. dollar rose above that measure on a sustained basis on January 9.
The yen was helped after data from Japan showed the country unexpectedly logged a trade surplus of 32.9 billion yen in February, against a forecast of a deficit of 120 billion yen.
The dollar was last down 1.1 percent against the Japanese currency at 82.469 yen. Earlier, the dollar hit a one-week low of 82.329, well off an 11-month high of 84.187.
Goldman Sachs on Wednesday put out a recommendation to short the dollar against the yen. The U.S. investment bank said there is a significant risk that the current uptrend in dollar/yen could reverse in the new fiscal year that starts on April 1.
In addition, Goldman cited its expectations of an improvement in Japan’s current account balance.
“The recent deterioration in (Japan’s) trade balance was likely driven by temporary factors, and our Japanese economists expect the current account balance to remain in surplus in the next few years,” Goldman said in a note.
The yen has fallen more than 7 percent versus the dollar in 2012, on the Bank of Japan’s easing steps and after the country last year posted its first annual trade deficit in 31 years due to a surge in fuel imports after the Fukushima nuclear accident.
(Additional reporting by Julie Hvaiv and Nick Olivari)
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