JPY edging higher on uneasy global markets

Geopolitical headlines have occupied much of the market’s attention on the two tankers attacked near  the straits of Hormuz. Currencies have hardly been impacted outside of modest safe haven bids and we take our cue from crude oil, which has merely rebounded off the lows. Some of the sting has been taken out of the situation in the US’ mostly measured response even as it accused Iran of carrying out the attacks.

China moved its data releases to much later in the day and they have just been released this morning and show that Industrial Production in May missed expectations at 5.0% year-on-year (vs. 5.4% expected) growth, while May Retail Sales rose 8.6% vs. 8.1% expected. Regarding the latter figure, I’m a bit curious what Chinese consumers were buying to take overall spending to that level when car sales dropped 16.4% year-on-year in May.

Boris Johnson took 114 of the 330 possible votes in the Tory leadership candidate selection process, so far ahead of the nearest competition (Jeremy Hunt at 43) that there is talk of the centrist candidates pooling their resources to counter his ascendancy. In the end Tory party voters will decide once the two candidates are identified by the end of next week. We see very strong odds that Boris Johnson will be the next UK prime minister and that is also now the consensus and sterling seems to be taking it into stride. Look for a piece from me later today on the outlook for Brexit from here.

FX remains in a low volatility rut even as gold is making a bid to rise above the long-term overhead resistance that stretches at least to $1,375 (vs. $1,357 as I am writing). The key test for the sustainability of that move  is whether the Fed is ready to confirm and even outperform the market’s dovish expectations at coming meetings. 

Strong 10-year and 30-year Treasury auctions over the last couple of days have driven US yields lower and kept the yen solidly bid here – with gold playing a supporting role there as an apparent safe haven defense against both negative yields as bond yields drop globally, against the risk of weak asset markets if the cycle is slowing, and against the risk that central banks pull out all the stops to bring back inflation.

In an interview on Bloomberg, famed investor Paul Tudor Jones  said he expected gold to rise aggressively. For those of us trading FX lately, we’re envious of the move and wonder if its too much to ask that something start moving aggressively in the major currencies as well. On that note, the next best two events that could spark volatility across asset classes are next Wednesday’s Federal Open Market Committee meeting and the run-up to and outcome of the G20 meeting June 28-29.

Trading interest

Staying long USD vs. AUD, NZD and/or GBP, with tightened stops below the recent highs in AUDUSD, NZDUSD, GBPUSD.

Chart: USDRUB

The Russian ruble has enjoyed strength (consider the carry on top of the recent exchange rate stability) and has slipped back towards the assumed “floor” around 64 where Russia is happy to accumulate foreign currencies rather than allowing the ruble to strengthen.  The consensus is for a 25 basis point cut from the Russian central bank and guidance will be key here – but developments in oil and emerging market spreads, which have improved again from a recent spike, will rule the day.