Safe haven buying pushes JPY, CHF higher

Good morning

So I returned to my desk after a day or so of illness during which the market had a bit of activity, and it reverted yesterday to the usual rangebound, directionless trading that we’ve become used to these days.  GBPUSD is a smidge lower than it was this time yesterday, now 1.2625, EURUSD at 1.0835 is also just a touch lower.  The excitement I thought we may see during the Fed officials speaking failed to materialise, some hawkish comments from Kashkari who raised doubts as to whether we’d see any rate cuts in 2024 perhaps responsible for the slightly higher USD. 

USDJPY dipped below 151.00 overnight, it has since clawed its way up to 151.20 but comments on possible intervention has taken pressure off the upside for now.  FinMin Suzuki was out with the usual ‘we are watching FX closely, won’t rule out any options’, but it was comments from BoJ Gov Ueda that grabbed attention when he said that an excessively weak yen could impact interest rates decisions, raising the possibility of higher rates earlier than expected.  Former currency diplomat Yamazaki added to yen support when he suggested 152.00 would be something of a line in the sand for BoJ intervention.   

Attention is now well and truly turning to the US nonfarm payrolls data this afternoon.  A headline of +200k is expected which is down on the previous months reading of +275k.  A weaker reading could well see the US dollar under pressure and well worth watching for revisions to the previous months data, this is what spooked the mark most last time, which saw a revision from +353k to +229k, quite a substantial shift.  Of course, if the data is stronger the market could begin to doubt the chances of a June rate cut and USD could head higher.  Keep an eye on average hourly earnings and unemployment rate as well which came in at 4.1% 3.9% respectively last month.

Gold had broken through $2,300 on Wednesday night but couldn’t hold it and by the early hours of yesterday morning it was back below that level.  There is talk that Iran could be planning a large scale attack on Israel, in response no doubt to the recent Israeli attacks on Iranian officials in Syria.  The US exchange, CME, raised its margin requirements for gold which seems to have been responsible for a dip in gold prices overnight, it traded as low as $2,268 before recovering to $2,283.  

If Iran were to attack Israel, it would likely cause gold and oil prices to rally.  Oil has traded higher again, WTI rose to $87.00 and Brent is around $91.00.  Yen and CHF, as well as USD, have also historically been safe haven currencies so worth watching them if we do see any escalation in the middle east conflict.  CHF buying late Thursday that took EURCHF down from 0.9830 to 0.9760 came at the same time as the USDJPY dip and the jump in oil prices suggests the moves we have seen are indeed more down to safe haven buying than rate outlooks.

In sport, we were treated to a highly entertaining football match yesterday as Chelsea beat Man Utd 4-3 with two extremely late goals in a match which was turned on its head on a few occasions.  The result did Spurs a favour, keeping Man Utd nine points below Spurs, but has put Chelsea within touching distance of the European places.  If they win their game in hand they will be up to seventh and just two point behind Man Utd who currently sit in sixth place.  Liverpool regained the league top spot with a win over Sheffield Utd. 

The big match this is weekend looks like Man Utd v Liverpool, both teams with so much to play for.  Spurs take on Forest, I always have a bit of a soft spot for Forest but I’m afraid this time I’m hoping they lose comfortably which would boost Spurs chance of a Champions league spot. 

Have a great weekend when it comes.  If my forecast is correct this morning looks pretty ropey but it may dry out this afternoon and we may even be in for a brief spell of sunshine over the weekend which would be greatly appreciated.  Temperatures are still low mind you, but enough to get the grass growing, I’ve not ventured into the garden for a few days but will no doubt be surprised how long the grass is when I finally get the mower out again.

Until then, we have the nonfarms to watch and we hear from and several Fed officials, I would not be surprised to see them subtly pushing back on rate cut prospects, particularly if the US data is strong.  And of course we hope the fears of escalation in the middle east prove to be unfounded,   

-  10.00 EU retail sales

-  13.30 US nonfarm payrolls

-  13.30 CAD unemployment

-  13.30 Feds Collins speaks

-  14.15 Feds Barkin speaks

-  15.00 CAD Ivey PMI

-  16.00 Feds Logan speaks

-  17.15 Feds Bowman speaks

Softer US ISM sends USD lower, but watch comments from Fed officials

Good morning

I’ll begin by offering my apologies for the lack of report yesterday.  I seem to have a knack at the moment of picking up anything unpleasant going around, this time it was a 24-hour stomach bug which I have to say was hugely unpleasant and although I am vastly improved this morning, I’m still on the delicate side. 

So, what did I miss?  Well quite a lot by the look of it.  Tuesday morning I’d written that GBPUSD was down to 1.2540 and EURUSD to 1.0730, each are now over 100 pips higher at 1.2660 and 1.0850 respectively.  This bout of USD weakness comes despite a decent ADP number out of the States yesterday, instead the market paid more attention to the ISM services number which, although still above 50 and therefore indicating expansion, came in below expectations. 

In addition, Feds Powell was speaking, his comments also added to USD weakness, suggesting that rate cuts this year are still on the agenda, although I have to say I thought he did his best to warn rate cuts may not be seen as early as we hope, making it clear Fed will hold off cutting rates until there are clearer signs of lower inflation.  I think he is preparing us for the possibility that unless data between now and June is softer, they won’t be cutting rates.  The market seems to have overlooked this.  

We have a host of Fed officials speaking through the afternoon, my guess is they will all talk about potential for rate cuts this year but I will look for any signs that they are thinking June could be too early. 

We have the next round of US jobs data this afternoon, in the form of US challenger and initial jobless claims, ahead of tomorrows all-important nonfarm payrolls.   

USDJPY has failed to capitalise on US weakness, it remains stuck in the high 151’s.  Before yesterdays US ISM number it came within a couple of pips of 152.00 but did get dragged a little lower on the release.  Currently 151.70, support seems to be noted around the 151.50 area and of course 152.00 is capping the upside.  This leaves GBPJPY up at 192.15.

Gold prices meanwhile have certainly taken advantage of the USD weakness as well as rising geopolitical risks, trading briefly above $2,300 overnight and although it really was brief, we are currently sitting at $2,297, the pullback being rather shallow.  Oil prices have also benefitted from the geopolitical situation, US WTI hit $86.00 yesterday, while Brent traded to almost $90.00, both the highest levels since October last year which followed the terror attacks in Israel.

In sport, Arsenal have regained top spot in the Premier league with a win over Luton yesterday, Man City did both themselves and Spurs a favour in beating Aston Villa.  Arsenal’s reign could be short-lived, Liverpool can regain top spot with a win at Sheffield Utd this evening.  Meanwhile a win this evening for Chelsea over Man Utd would put them within touching distance of the European places.

That’s all for now, EU and UK PMIs up this morning, anything better than expected could see gains against USD continue.

-  09.00 EU services PMI

-  09.30 UK services PMI

-  10.00 EU PPI

-  12.30 ECB minutes

-  12.30 US challenger job cuts

-  13.30 US initial jobless claims

-  13.30 Feds Harker speaks

-  17.15 Feds Barkin speaks

-  17.45 Feds Goolsbee speaks

-  19.00 Feds Kashkari, Mester speak

-  00.30 Feds Kugler speaks

-  00.30 AUS trade balance

Softer US ISM sends USD lower, but watch comments from Fed officials