The firm JPY on Thursday might be have been driven by the dynamic described above, as we also saw very weak EM currencies that day. Those flows can overwhelm other considerations (like the prior negative focus on the JPY on rising global yields, especially at the long end of yield curves – continuing to challenge the Bank of Japan’s ongoing easing, etc.). Some of those flows were predicated on the idea that rates were set to fall as EM banks might prove the first to cut rates as growth and inflation ease off. “….any event that sparks significant general volatility and risk aversion can lead to position squaring in what have been the most profitable trades – like long MXNJPY and CADJPY, BRLJPY, etc. As I argued Friday, one explanation for the action late last week was from a positioning angle: simply that short positioning in the JPY is quite aggressive, and when volatility across markets picks up on weak risk sentiment, position unwinding often sets in. The JPY-US 10-year correlation, as measured by the R-squared for the last 500 trading sessions is 0.89. JPY firmed again Friday – plenty more room for positioning to cause trouble for shorts.įollowing up on the stronger JPY that I discussed in Friday’s piece, in which I noted how remarkable it is to see the coincidence of a stronger JPY late last week even as US long treasury yields also rose sharply (particularly on Thursday’s wild US June ADP payrolls print). Longer US yields actually rose, steepening the US treasury yield curve further. The market reaction was quite brutal for the US dollar as front-end US yields pushed lower still after a spike higher and reverse the prior day. On the positive side, average hourly earnings were a touch firmer than expected despite an 0.1 hour uptick in the average weekly hours (which increase the denominator). consensus near 230k, but the revisions of the prior two months’ data was -110k. Not only was the Nonfarm Payrolls print a touch softer than expected at 209k vs.
The official US June jobs report on Friday failed to confirm the wildly strong June ADP payrolls growth numbers from the prior day. US CPI the focus this week, but RBNZ and Bank of Canada also on tap.AUD remains soft on China CPI pointing to deflation risks, NOK jumps on hot CPI.If we follow positioning logic – could be broad phenomenon. Upside risks for the JPY due to positioning.US jobs report Friday fails to confirm the wildly strong ADP payrolls numbers from the prior day.
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