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JPY weaker on BoP, SEK inflation in focus

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Japanese current account surplus increased to 963.0 billion yen in September, significantly more than 537.7 billion expected (287.1bn last); trade deficit narrowed from 831.8 to 714.5 billion yen. The sizeable depreciation in Yen and lower oil prices are most probably the leading explanatory factors in outstanding BoP print. USDJPY and JPY crosses rallied in Tokyo, Nikkei stocks gained 2.05%. USDJPY hit 115.45, stone’s throw below 7-year high 115.59. The pair is deeply overbought, yet pressures remain on the upside. Stops are eyed above 115.60/116.00. EURJPY consolidates gains at 142.59/143.36. The key resistance stands at 145.69 (Dec 27th high).

EUR/CHF legged down to 1.20218 yesterday. Downside pressures remain high as tensions on “Gold referendum” mount. The option markets are shifting toward “yes” pricing. We stand ready for SNB intervention should the pressures on 1.20 floor do not ease. In the gold markets, trend and momentum indicators remain on the downside. We see formation of bearish belt hold line suggesting the exhaustion of uptrend. Offers remain solid at $1,200.

Today, SEK-traders watch Riksbank October meeting minutes and October inflation data. The inflation expectations remain soft, the consensus is -0.1% deceleration in month to October (-0.2% y/y vs. -0.4% y/y in Sep). It is clearly too early to see the impact of October 28th aggressive 25 basis point rate cut on the macroeconomic data. USDSEK extends gains in the continuation of ascending channel building since March. Trend and momentum indicators are comfortably positive, 7.45/7.50 levels are at the radar. On the downside, support is seen at 7.3119 (21-dma), then 7.2228 (50-dma & Apr-Nov uptrend base). EURSEK remains well bid above 9.18/23 (including 21/50 and 100-dma & July-Oct downtrend top), key support is seen at 200-dma (currently at 9.0882). The pair did not trade below its rolling 200-dma in more than a year.

The Russian Central Bank moved closer to a free-float mechanism by removing its predictable intervention policy framework and RUB basket band yesterday, therefore giving itself freedom to intervene unannounced when market moves in RUB threatens country’s financial stability. Unhappy to see the RUB liquidity played against the good of Russia, the CBR will fight speculative unwinds by adjusting supply. The shift toward free-float RUB triggered RUB rally at the week start (+2.43% vs. USD since Monday), yet the overall bias remains comfortably RUB-negative, now that the RUB will be increasingly subject to macro factors as inflation, current account balance, oil prices, and geopolitical tensions – all seeming to go against RUB. We expect a bounce back toward 48/50 offers. Russian trade data and official reserve assets are due today.

G10 economic calendar is light, little data flow out of the US due to Veterans Day holiday. Traders watch Swedish October Unemployment Rate, CPI m/m & y/y, Spanish September House Transactions y/y, US October NFIB Small Business Optimism.

Quotes:

Peter Rosenstreich – Head of Market Strategy:

“Volatility in gold has surged, as Chinese bargain hunters snapped up the physical and speculation of prolonged ultra lose monetary policy has fueled demand. Yet, the move is already fading with daily charts forming a bearish belt hold line which indicates bullish exhaustion. We would short any additional short term rallies preferring to trade the longer term bearish trend”.

Ipek Ozkardeskaya – Market Analyst: “SNB intervention on the wire?

Downside pressures in EURCHF intensify as uncertainties on the outcome of November 30th “gold referendum” increase. Formerly, the “no” outcome was mostly priced in as traders didn’t give much chance for a ”yes victory”. However Swiss voters do not seem heavily against the idea of keeping 20% of SNB’s 522 billion franc worth assets in physical gold and in Switzerland. As speculations gain traction, the leveraged markets become a sizeable threat for the EURCHF floor. In the option markets, the “yes” pricing pulled the 1-month (25-delta) EURCHF risk reversals to lowest levels in more than a year, the pair is stuck between 1.2000/50 offers. We see large put expiries at 1.20 walking into November 30th. At this stage, we stand ready for SNB intervention should the tensions on 1.20 floor do not ease.

“The Russian Central Bank moves closer to a free-float mechanism by removing its predictable intervention policy framework yesterday, therefore giving itself freedom to intervene unannounced when market moves in RUB threatens country’s financial stability. Unhappy to see the RUB liquidity played against the good of Russia, the CBR will fight speculative unwinds by adjusting supply. The shift toward free-float RUB triggered RUB rally at the week start, yet the overall bias remains comfortably RUB-negative, now that the RUB will be increasingly subject to macro factors as inflation, current account balance, oil prices, and geopolitical tensions – all seeming to go against RUB. We expect a bounce back toward 48/50 offers.”

“Japanese current account surplus increased to 963.0 billion yen in September, significantly more than 537.7 billion expected (287.1bn last); trade deficit narrowed from 831.8 to 714.5 billion yen. The sizeable depreciation in Yen is most probably the leading explanatory factor in outstanding BoP print. Further improvement is being priced in. European traders triggered UD/JPY stops above 115.60-year high. Despite deeply overbought conditions, pressures remain on the upside. More stops are eyed above 116.00.”

Luc Luyet, CIIA – Senior Market Analyst: “EUR/CHF continues to drift lower. The recent break of the supports at 1.2045 and 1.2030 opens the way for a test of the SNB’s 1.2-threshold. For the time being, a break of this level is very unlikely. However, a “yes” vote in the Swiss gold initiative and additional massive increase in ECB’s balance sheet (e.g. through a full-scale QE) would weaken this threshold.”

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