Macro Indicators and Yield Dynamics
We have seen Europeans and Asians behave with concern when it comes to the US, and then when New York comes online, it is all forgotten about, because I think most Americans are aware of the fact that most of what you see now is political theater on both sides of the aisle. With that being the case, I would not read too much into this from a longer-term perspective, but it does explain what is going on during the session.
We do have 2 announcements during the session: we have PPI and retail sales. I do not know that they will have massive influences on the market unless they miss horribly, but we had CPI miss slightly during the previous session, so I think the market is already set up in the direction it wants to be.
USD/JPY
The first currency pair I am looking at is the US dollar against the Japanese yen, and it does make a certain amount of sense that if the yield is falling in the United States, it works against the carry trade a bit, and we did fall to test the 158 yen level. I think this is an area of support, and I certainly wouldn’t want to short this pair.
The Bank of Japan is still stuck with very low rates, and even if they do try to normalize, it is probably going to be a situation where the debt in Japan breaks something. You can see that up around the 162 yen level was a major swing high. That was right around a major intervention so market participants are watching that. I can assure you that the Bank of Japan does not have a specific line in the sand; it is not like we are going to hit 162 and they start dumping, but the market will treat market memory like that. I like buying dips; I think all the way down to about 156 yen.
NZD/USD
One outlier for the session is the New Zealand dollar. You can see it is struggling a bit against the US dollar after Governor Braman signaled a high probability of another rate cut, pushing this pair well below the 0.58 support level several days ago. Now we are still just hanging out, trying to figure out that rate cut. Is it going to cause a major issue for the Kiwi dollar? I think it does and I remain bearish in this.
You can see that we had bounced, tested the 50% Fibonacci retracement level, tested the 38.2% Fibonacci retracement level, and then continued lower. I do think this is one of those places, and the Japanese yen, where the US dollar will fare very well. I do not buy the extraordinarily weak US dollar story at the moment.
