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Eine Not So Kleine AUDJPY Nacht Movement
Update: RBA leaves rates unchanged as expected, AUD plunges as unexpected. FX traders around the world wish it was Friday already.
The AUDJPY goes berserk jumping by 20 pips as the pair goes offerless on news that the BoJ has decided to keep its credit program and interest rates unchanged, not precisely the news the market was expecting but the knee jerk reaction in the wrong direction shows just how habituated the market now is to endless stimulation by CBs. The news was complete as expected, as GCI pointed out earlier: "Many traders believe the central bank - after bowing last week to
intense political pressure - will keep its policy unchanged for
several weeks. Volatile moves in the yen will likely be the
single largest determinant of additional BoJ action. The
central bank's ability to purchase additional Japanese government
bonds is limited to rules that require the central bank to limit
holdings in long-term bonds to the outstanding balance of banknotes
in circulation. This means Japan's ability to purchase JGBs
fell to less than ¥20 trillion." Elsewhere, Bob Katter just confirmed his support for an Australian coalition government, which would end an impasse and result in a minority government by Labor Prime Minister Julia Gillard. The news also comes in advance of the RBA decision, which is expected to be unchanged, as summarized by Goldman (below). In the meantime, after the initial surge in the AUD, the result is an immediate selloff in the AUDJPY pair, bringing the rate to unchanged, i.e. trading on mere noise.
From Goldman:
AUDUSD into the RBA Rate Announcement
The RBA will deliver their Cash Rate decision on Tuesday (05.30 Ldn), where an 'unchanged' verdict is expected. Interest Rate markets currently assign zero chance of an increase, and suggest only around 12bps of tightening over the next twelve months. GS Strategy continue to hold a far more bullish stance on AU rates however, forecasting another 100bps of further tightening within the next twelve months, with the next increase to be delivered in November - though 'October cannot be ruled out'.
Recent activity data from Australia has been very firm (GDP, Retail Sales, both with upward revisions) and on that basis I see the risk into this meeting, as being for a more upbeat assessment than the market anticipates. GS Strategy share this view and seek to benefit from this scenario, with their recent trade recommendation to pay 5-yr AUD swaps (at 5.09 against receiving 6-mth rates, for an initial target of 5.60 and a stop on a close below 4.80).
In FX space, I remain committed to the long AUDUSD trade, and also hold AUDCHF longs. I am comfortable holding these positions into the meeting, given the quality of recent data-flow, and my belief that the market is not holding a significant long. Having weathered the political uncertainty of the last two weeks, and having held the critical 55dma from a technical standpoint, the path of least resistance is now up to my mind. From here, I would advocate adding to AUDUSD longs on weakness into the .9066 - .9100 band, and would only reassess the position on a close below the .9030 mark. The next major upside target is formed at .9325 (30.4 high), whilst an extension towards the cycle highs (.9407, Nov '09), would not be unreasonable, should a more hawkish tone from the RBA be delivered.
Good luck
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What a play on words! Mozart would be proud!
If you look at it now it is showing a hand giving the middle finger. You can almost make out the knuckles. On another note, the ES and AUD.JPY has completely disconnected. A 40 point ES gain vs the carry from 8/30. we are touching the insanity reached on ~8/11 and 7/18 with the previous time catching this level in 5/21 to 5/27 area.
my favorite- one song i don't mind getting stuck in my head!!!
Elections slated for Sept 14 and ratings in play
According to FITCH; key issue for Japan's "ratings is whether a government can be formed with the will and authority to draw up and implement a credible medium-term fiscal consolidation strategy,” Hong Kong- based Colquhoun, head of Asia-Pacific sovereign debt, said in an e-mail to Bloomberg News today. “Recurrent political noise imposes delays in reaching this goal.”
PM Kan also has propsosed a cap on bond sales so all seems to point to No Intervention.
Re the title - not bad.
Strikes in France and the UK. Could it happen here?
http://www.economist.com/blogs/newsbook/2010/09/week_ahead
http://www.bbc.co.uk/news/world-europe-11204528
General strike in France, as the people are incensed at having to get in line with the rest of the world re retirement age. Hard luck, striking will not alter reality. Morons.
TD, wrong way around, katter went to the coalition, but the two other independants went to Labour, thus Labour gets into power.
Sehr gut!
Not sure we'll have to worry about aud catching a bid for awhile. The communists have a firm foothold there as of last night.
So the insanity continues. Yahoo Finance reports the euro banking crisis is back in play. You don't say? Bold headline for Yahoo. Lets play whos holding the doo doo bag. Euro on the decline, but isn't that what they want in the race to the bottom? Print our way to export prosperity?
Man things are f'ed up.
Looks like the mainstream press finally got around to realising the european stress tests were shaky.
Tyler, you realize that the 'A' in AUD stands for Australia not for Austria, right? Right?
Is reality hitting the fan? You can only print your way to prosperity so long.
DOW/S&P500/FTSE/EURO short signal continues:
http://stockmarket618.wordpress.com