marctomarket.com / By Marc Chandler / March 16, 2013
The technical tone of the major foreign currencies changed in the second half of last week. Better Australian jobs data, more dovish Reserve Bank of New Zealand and Norges Bank, unexpectedly optimistic comments from Bank of England Governor King and reports Qatar was looking to invest GBP10 bln in the UK, saw dramatic counter-trend moves. While recognizing that market positioning gives scope for some extension of these corrective moves, we advise taking advantage of the price action as a better opportunity to participate in the underlying trends or, alternatively, adjust hedges accordingly.
The one major exception to this general view is the Japanese yen. We remain concerned that the yen’s dramatic depreciation is nearly over. The market’s react more to surprises than known developments. Abenomics is largely a known quantity. There is still one more window of opportunity to shock and awe the markets. That is when Kuroda announces the new asset purchases, which may happen as early as later next week, or the following week, but likely before the regularly scheduled meeting in early April.
We note that Japanese investors have generally been selling foreign bonds here in 2013, with MOF data showing only two weeks this year in which Japanese investors were net buyers. Ahead of the fiscal year end, it would not be surprising to see more repatriation, which may be yen positive.