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JPY Drops on Kuroda Comments For Further QE, EUR Options Telling

JPY Drops on Kuroda Comments For Further QE, EUR Options Telling

2017-04-20 19:45:00
Tyler Yell, CMT, Currency Strategist
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Will JPY Pairs Resume Their Q4 Trends?See our forecastto find out!

Talking Points:

  • JPY Drops on Kuroda QE Comments
  • USD/CAD touches 5-week high
  • EUR Upside Options Better Bid Ahead of French Sunday Vote

JPY squeezed lower on confirmation that the Bank of Japan will not change their course and keep QE in play as needed. In an interview with Bloomberg on Thursday, BoJ Governor Kuroda said that the current pace of purchases would continue for some time and he also added that he does not see any constraints to the BoJ policy. USD/JPY has traded as high as 109.48 on Thursday. However, the pair to watch should JPY weakness materialize is likely GBP/JPY given the potential for a further unwind of GBP shorts.

Yesterday, we encouraged watching for insights about BoE views with the news of the U.K. Snap Election set for June 8 to possible drive the Pound. These speeches do not provide Q&A opportunity, and the released text from the BoE site show nothing on monetary policy or the economic outlook explicitly.

Lastly, ahead of Sunday’s first-round election for French Presidency, EUR bears have lost their confidence it seems. Recently, EUR options volumes have decidedly favored EUR calls to EUR puts. Additionally, per Bloomberg, puts expiring after Sunday’s 1st round vote hold a large majority to calls. This skew in options past Sunday indicates that if the vote outcome favors Fillon or Macron (the two “market-friendly” candidates) as opposed to Le Pen or Melenchon, the risk may be to the upside for EUR, which aligns with what we see in core European Bond markets.

Interested In Seeing How Retail TradersAre Exposed In Key Markets?Find Out Here!

Closing Bell’s Top Chart: April 20, 2017, DXY Sits At LT Support Before French Election

JPY Drops on Kuroda Comments For Further QE, EUR Options Telling

Tomorrow’s Main Event:

Traders are already focusing on Sunday’s French Election, but the event du jour on Friday will likely be Canadian CPI. The Bank of Canada has kept a dovish tone, which has helped the Canadian Dollar trade at 5-week lows near the greenback, but a surprising CPI could cause the BoC to shift their rhetoric. Traders are also watching Oil, which has weighed on CAD valuation lately despite word that Major OPEC nations are intent on extending the production cut to get the inventories below the 5-year average. Given the extreme weakness of CAD lately, traders should anticipate asymmetric risk on the news event in that a strong print in CPI would cause a bigger move in favor of CAD strength than a bad print would cause further CAD weakness.

IG Trader Sentiment Highlight: USD/CAD Bears Jump In

JPY Drops on Kuroda Comments For Further QE, EUR Options Telling

USDCAD: As of April 20, retail trader data shows 38.9% of traders are net-long with the ratio of traders short to long at 1.57 to 1. The percentage of traders net-long is now its lowest since Apr 03 when USDCAD traded near 1.33841. The number of traders net-long is 9.1% lower than yesterday and 25.2% lower from last week, while the number of traders net-short is 43.0% higher than yesterday and 16.2% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDCAD-bullish contrarian trading bias.(Emphasis Mine)

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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