Forex Institutional Research: Societe Generale FX Daily
Key quotes from the Societe Generale FX report:
Head fake or imminent FX headache
Softer US inventories boosted oil prices, but equities fell amid concerns about the health of the retail sector. The US data drought goes on but that leaves Treasury yields lower, 10-year TIIPs yields once again flirting with the 10bp area and the dollar therefore, remains largely friendless. The path between data that is strong enough to revive Fed hiking talk and weak enough to cause a real scare about global growth, might be narrow, but we’re still on it. DXY and TIIPS march hand in hand and while we’re not re-testing DXY range lows yet, there’s certainly nothing sending it back up again. Our strategy of slowly building dollar longs is going to have to emphasise the ‘slowly’ bit for now!
The day’s big event is the UK MPC meeting and Bank of England Inflation report. No policy rate change is expected, of course, but the tone of the discussion, and of the Inflation Report, and of the press conference at 12:30 BST, is likely to be downbeat. The message from Mr Carney is probably that the MPC intends to embark on a limited and gradual tightening of policy, but that will keep speculation that the next move is a cut alive. We remain bearish of GBP<> expressed through GBP/USD and GBP/NOK shorts. The Norges Bank will leave policy on hold, and they certainly don’t want to encourage NOPK strength, but may get a little of that regardless.
The most eye-catching data release overnight was the biggest monthly Japanese current account surplus since 2007 (Y3trn). Low oil prices have been doing wonders for Japan’s balance of payments. However, on an annual basis, the current account surplus (Y18trn, just over USD 160bn) is actually smaller now than annual net purchases of either foreign bonds or foreign equities. Over the last couple of years, encouraged by BOJ policy, Japanese investors have fallen in love with foreign assets again and that doesn’t sit comfortably with the notion of an ever-stronger yen. I’m still trying to figure out an entry level for a short yen trade.
Soggy Euro area industrial production (exp -0.5% m/m) and US jobless claims make up the rest of today’s calendar. Long ‘oily-FX’ and SEK, sums up the rest of our FX trading strategy.
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