Dollar and Yen Push Lower

With the exception of the yen, the
US dollar is lower against all the major currencies. 
US Treasury
yields are firm, extending yesterday’s rise a little.   This may help keep the dollar straddling
JPY109, but unwinding long yen cross positions is helping underpin the other
major currencies.  The Dollar Index is making a new low for the week and
appears poised to test support around 98.85-99..00. 

The Indonesian rupiah is one of the few emerging market currencies under
water today, following what appears to be an electoral defeat for an ally of
President Widodo in the Jakarta gubernatorial race.
  Separately, the
central bank kept rates unchanged at 4.75%.   It is the fourth
consecutive losing session for the rupiah.  

The news stream is actually light,
suggesting the pressure on the dollar may be emanating from sentiment and
There were three economic reports of note.  The
most important of which was the Japanese trade figures.  

Japan’s trade March trade surplus of JPY614.7 bln was larger than the Dow
Jones survey of economists projected (JPU576 bln), but still off more than 17%
from a year ag
o.  Merchandise exports rose 12% year-over-year, nearly
twice the median guesstimate
Exports to Asia were strong (16.3% year-over-year), reaching a record high,
helped by Chinese demand for autos and auto parts.  Imports rose 15.8%,
well above February’s 1.2% gain and half again as much the as 10% anticipated.  
The value of Japanese exports rose to the highest level since September

Japan’s trade figures are under closer political scrutiny given the
stance of the Trump Administration. 
Exports to the US rose 3.5%, the
second consecutive increase, though auto exports were off 7.2% (in volume
terms).  Imports from the US rose 16.3% (in value terms).  The US
bilateral deficit with Japan narrowed 8.1% from a year ago.  

Separately, we note that the MOF weekly figures show Japanese investors continue
to repatriate funds. 
Between foreign stock and bond sales, Japanese
investors sold a JPY1 trillion of foreign
assets last week.  For their part, foreign investors bought about JPY726
bln yen of Japanese paper assets, about a 25% decline from the previous
week.    Evidence that yen strength reflects safe haven demand still seem

There are some sizeable yen options
set to expire today.
  There are options worth $1.9 bln struck at
JPY109 that roll off today, and another $315 mln at JPY108.95.  Tomorrow,
there the JPY109 strike seen another $1.9 bln roll-off.    It
looks like resistance near JPY109.20 will be sufficient to check dollar gains
now.  Support is pegged in the

New Zealand reported somewhat higher than expected inflation. 
The central bank’s inflation target was reached
for the first time in five years in Q1 17.  The 1.0% quarter-over-quarter
increase lifted the year-over-year pace to 2.2% from
1.3%.  However, the overall underperformance of the dollar-bloc currencies
continued.  The New Zealand dollar stalled near yesterday’s highs
(~$0.7050), but support near $0.7000 continues to hold.  

For its part, the Australian dollar
is a doing a bit better as bid emerged again on the dip below $0.7500. 

However, to lift the tone it needs to get
back above $0.7540.  About A$222 mln in options expire today struck at
$0.7500.   The Canadian dollar is consolidating yesterday’s losses
and is practically unchanged on the day.  Resistance for the US dollar is seen in the CAD1.3500-CAD1.3535 area. 
The upper end of the range is the high
for the year set on March 9.  There are about $380 mln of options struck
at CAD1.35 that will test nerves today.  

The eurozone reported a strong
recovery in February construction output after January’s
weather-induced weakness.
  The month-over-month output jumped 6.9%
after a 2.4% slide in January, lifting the year-over-year pace to 7.1%.  
It was the strongest monthly gain in five years.  

We note that the French 10-year
premium over Germany has narrowed a little today and
now is the narrowest in a month.
  France raised  5.5 bln euros at today’s bond auctions, on the
eve of the election.  D
emand for
French paper was strong.  The bid-cover, for example for the 50-year bond, was 1.99 up from 1.86 in the January sales. 

Demand for the euro against sterling and the yen appear to be helping the
single currency against the greenback. 
   The euro, which
neared the GBP0.8300 in response to May’s election call, is testing the
GBP0.8400 area now.  It finished last week near GBP0.8480.  The euro
reversed higher against the yen on Monday and had
been climbing since.  Monday’s low was below JPY115, and now it is trading near JPY117.40.    The
JPY117.80-JPY1180.00 area may offer formidable resistance.  

Against the dollar, the euro has approached $1.0780.   Many
are monitoring the trendline drawn off the high from last November and the late
March high.  It is found near
$1.0835 today Support is pegged near
$1.0700.  Between $1.0750 and $1.0800, there are around 720 mln euros in options rolling off today.  There
are another 1.3 bln euro of options rolling off struck between $1.0715 and
$1.0725.  Tomorrow the $1.07 strike has 1.2 bln euros

Today’s US session features initial jobless claims, which covers the week
of the non-farm payroll survey, the April Philly Fed, and the leading economic
  What appears to be the near stagnation of the US economy
in Q1 (Atlanta Fed GDPNow tracker is 0.5%, annualized) has given rise to new
concerns about the health of the US economy.  We suspect the market is
exaggerating the significance in terms of
Fed policy for the June FOMC meeting.  Financial conditions, as we have
noted before, are easier now than when the Fed hiked in December 2016 and
against last month.


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