FOREX: JPY Trade-Weighted Index Pierces a New High, BoJ Pricing Supports
- JPY strength again stands out once again as USD/JPY and CHF/JPY are pressed to new YTD pullback lows. Market pricing for BoJ monetary policy this year is again largely responsible, as markets continue to price out easing as a response to the recent run higher in both nominal Japanese GDP and wages data that remain supportive of tightening.
- Evidence of heavy selling volumes, a break of the bear trigger in USD/JPY at 150.93 and a generally softer USD all added extra weight, prompting a sharp move lower in the 3m USD/JPY risk reversal - which spilled to 1.5 points in favour of puts, and closer to the February low. The JPY trade-weighted index probes a new YTD high.
- Despite the sharper market moves in JPY, EUR/USD trades with more poise, recovering gradually off yesterday's lows just ahead of the $1.0400 handle. This keeps the pair within range of a series of really sizeable option strikes - with notional set to expire today across the $1.0400-1.0450 strikes amounting to more than $10bln. Certainly the largest size of the year so far.
- The dip in the USD Index has tipped prices back below the 107.00 handle, but serious support won't cross until the mid-February pullback low of 106.566.
- Weekly jobless claims and the Philly Fed Business Outlook mark the US data highlights Thursday, shortly followed by the preliminary Eurozone consumer confidence release for February. Fed's Goolsbee, Musalem, Barr and Kugler are set to make appearances, while ECB's Nagel makes a panel appearance in Germany.
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GERMANY: Autos Associaton-'Transatlantic Partnership Must Be Expanded'
Reuters reporting comments from Chancellor Olaf Scholz following the inauguration of US President Donald Trump. Scholz to Trump: 'Together we can provide decisive impetus for freedom, peace and security as well as prosperity and economic development on both sides of the Atlantic.' Scholz's comments come alongside those from the German Association of the Automotive Industry (VDA), the interest group representing Germany's economically and politically powerful automotive sector, focusing on the new Trump administration in the US and what it means for the German car sector.
- VDA on US-EU relations: 'The transatlantic partnership must be expanded, we must make offers, be courageous...We would only lose from a US-EU trade war...We must also become more independent from China but not 'decouple'...Trump constitutes a demand for Europe to act more independently.'
- On tariffs: 'We have had discussions in the US on possible tariffs...Exact steps remain to be seen, best thing we can do is strengthen our economic position...Tariffs would make production more expensive everywhere [and] drive up inflation...We hope for further discussions.'
- VDA on EU policy: 'We must review EU carbon emissions targets and prevent further fines...We need a European capital market union...We need a clear European approach, from defence to energy'.
The autos sector remains politically important in Germany. The financial struggles of the industry amid the transition to EVs and increasing emissions targets threaten tens of thousands of jobs, and with a federal election in a month, politicians of all parties are seeking to avoid US tariffs that could further threaten German employment and exports.
GERMAN DATA: ZEW Headline Expectations Fall in January
The German ZEW expectations index fell to 10.3 in January, compared to a consensus estimate of 15.1, and December's 15.7, indicating a broad stalling at a relatively low level. The current situation index meanwhile ticked up a bit, to -90.4, outperforming consensus of -93.1 but remains bleak.
- A wider update to German sentiment will follow later this week with the January flash PMIs, and Monday's IFO Business Climate.
- The ZEW index is based on a survey of "experts from banks, insurance companies and financial departments of selected corporations [which] have been interviewed about their assessments and forecasts for important international financial market data" - so the index can exhibit elevated levels of correlation with German stock indices as the DAX.
EURIBOR: EURIBOR FIX - 21/01/24
EURIBOR FIX - EMMI/Bloomberg
- EUR001W 2.9090 -0.0120
- EUR001M 2.7740 -0.0110
- EUR003M 2.6810 0.0040
- EUR006M 2.6060 -0.0130
- EUR012M 2.4890 0.0060
