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TALKING POINTS – US DOLLAR, YEN, EURO, STOCKS, US BANKS, EARNINGS
- US Dollar retracing lower in APAC trade, Powell a possible trigger
- Yen down as Nikkei gains, may rebound on US bank earnings reports
- Euro broadly higher vs G10 FX, newswires citing one-off catalysts
The US Dollar fell in Asia Pacific
trade, with prices seemingly retracing after yesterday’s spirited advance. Worried comments attributed
to Fed Chair Powell may have helped. Bloomberg cited unnamed sources
claiming he told Democratic lawmakers at their annual retreat that softer growth in China is having an impact on US performance
while the slowdown in Europe has turned out to be more severe than expected.
The Yen declined as Japan’s
benchmark Nikkei 225 stock index traded higher, sapping the anti-risk
currency’s appeal. Fast Retailing – the parent company of Uniqlo and
Theory – led the charge upward after second-quarter operating profit of ¥68.3 billion topped the ¥62.9 billion forecast. Rising
bond yields punished the go-to funding unit yesterday as higher lending rates spurred carry trade demand.
Meanwhile, the Euro powered
higher, scoring gains against all its G10 FX counterparts. A discrete catalyst for the move was not apparent. The newswires
attributed gains to heavy EUR/JPY buying at the Tokyo currency fix. Bloomberg cited unnamed regional traders as saying that this
activated a wave of stop-loss activation on short positions.
YEN MAY REBOUND AS US BANKS REPORT FIRST-QUARTER RESULTS
The spotlight now turns first-quarter earnings reports from US bank giants
JPMorgan and Wells Fargo. The former is expected to see earnings per share (EPS)
of $2.35, a rebound from the one-year low of $1.98 in the fourth quarter. The latter is projected to see deceleration, with EPS
ticking down to $1.09 in the first three months of the year compared with $1.11 previously.
Traders are likely to be at least as interested in the lenders’ forward guidance – looking
for that to inform global business cycle expectations amid broad-based signs of slowdown – as they are in headline
statistics. Downbeat rhetoric may cool risk appetite, renewing haven demand for the Greenback and putting the Yen back on the
offensive while commodity bloc FX bears the brunt of selling pressure.
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CHART OF THE DAY – MANUFACTURING SLUMP DRIVING GLOBAL SLOWDOWN
A slump in manufacturing looks to be driving the broad downturn in economic growth since the beginning of last
year. JPMorgan global PMI data shows that factory-sector activity growth has slowed precipitously while performance in the services
has held up.
It is tempting to take heart in this divergence. After all, services contribute over 60
percent of global GDP (accoring to data from the CIA). Such optimism may be premature. Manufacturing is more cycle-sensitive than
services. The slump in the former may thus be a leading indicator of what’s to come for the latter.
FX TRADING RESOURCES
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
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