Reuters Insider - Market Pulse: Dollar ‘best looking horse in glue factory’

IBEX Technologies

10/01/2014 16:02

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 Source:             Thomson Reuters                                   
                                                                       
 Description:        As markets wait for the first U.S. nonfarm        
                     payrolls numbers, the dollar still looks like the 
                     least bad option for investors, says Reuters FX   
                     analyst Neal Kimberley.                           
 
 
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Transcript (May be auto-generated)

 So it's the final countdown to the first nonfarm payrolls of the year. The 
Reuters forecast is for a gain of 196,000 jobs. Morgan Stanley telling me this 
morning that anything over 200,000 will put a rocket under the Dollar. Let's get
Neal Kimberley's take. He's of course, Reuters' FX Analyst. Is that putting it a
bit strongly, rocket under the Dollar, 200,000? No, Morgan Stanley have hit it 
right on the head. I mean there's those bad weather when they were doing these 
numbers so there is an argument for saying that the construction sector really 
also the leisure sector might come in lower. So if you get a strong nonfarm 
payroll number today and above 200,000 would certainly tick that box, people do 
want the Dollar against certain currencies. It's not uniform as you've seen with
the Euro. It's not uniform but they do want the Dollar. 

And as we saw from the Fed minutes, the Federal Reserve, the various components 
on the committee might not agree totally but they've got a consensus. But the 
tapering is happening anyway, right? Absolutely. So does it actually matter 
whether we get 170,000, 180,000, 200,000, 220,000 today? Not really, surely.? 
Me? Buy Dollars or buy Dollars. That's- Sell Yen or sell Yen. The only thing is 
the market positioning. I bet the market's clearly not positioned short of 
Euro/Dollar. The market was positioned long of Cable before the UK, now they're 
out of it. I don't think they're that long of Dollar/Yen. 

Longer Dollar/Canada, maybe, short of Aussie, short of Kiwi maybe. But there's 
an argument there for keeping those positions. I think that any Dollar selloff 
this afternoon will prove to be rather short-lived because the American – USA 
does look – she is still the prettiest filly in that glue factory lane. And 
the Yen is the ugliest filly in that glue factory, right? Yeah, but Dollar/Yen's
confined today. There's $2 billion of 105 expiries, three o'clock London Time, 
Axel, which means there's a tremendous amount of gamma out there, keeping 
Dollar/Yen around the 105.00. There's more gamma than the Incredible Hulk, mate.
So I think it's going to take an awful lot to drive Dollar/Yen away from that 
105. Couldn't have said it better myself, Neal. 

105, and where next after that? I still like the Yen weaker. I mean there are 
people telling me – and I'm picking up from a few accounts in Asia says well 
you know what, with the pressure that's coming on because some of the Asian 
emerging markets are pointing out that the Yen's weakness is killing them, there
is an argument for saying that perhaps some of those Asian central banks might 
discreetly want to start selling Dollar/Yen. I'm hearing offers around that 
105.50 level. I still think Abe needs the Yen weaker, maybe what 108, 109 
through the year. 

And I don't like Japan. I like America and I don't like Japan. The Euro is 
interesting, got a bit of a knock yesterday on the dovishness from Draghi but 
the market's not having it. Why not? I got this wrong. I thought the Euro would 
go down at the start of the year because of the disinflationary impulse. And I 
came at it from the wrong direction. I missed it totally. People on the fixed 
income side, real money in particular, looked at the same issue of disinflation 
and came up with the opposite conclusion. Their viewpoint was if inflation in 
the Eurozone is moving down away from that close to but below 2% nonsense, 
therefore the ECB will have to do something, take decisive action, if you will, 
as the man said yesterday which begs the question, why he didn't do it before 
Mr. Draghi but walks swiftly move out with that one. But their real money 
decided, that's what's going to happen then you should be locking in the yields 
on the periphery now because the ECB will be trying to drive yields down to 
combat disinflationary impulse. And if they do that, if they do other measures, 
it may well benefit the periphery in the first place and therefore, you should 
be long of periphery bonds. But to do that when your capital's outside the 
Eurozone, you have to buy the Euros to be able to get into the position to start
with. Yeah. And consequently, I think that's underpinned the Euro since the 
beginning of the year. I don't know how long it's going to last. I think it's 
probably a premature move but nevertheless, I would not be making a lot of money
by being short of Euros up here and I'd be getting terribly frustrated. So at 
the moment, I'd stand back from it, I'd be looking for levels to sell the Euro, 
maybe 1.37, 137.50. But I have come round to the fact that I have been wrong on 
the Euro since the beginning of the year and I am not a stubborn man. I think 
there's something else you've been wrong on, Neal. 

That's long Turkish Lira, short Yen, that beautiful trade that you said, Axel, 
put all your money on the Turkish Lira just before Christmas. My eyes water when
I look at that. So you used a foreign exchange term which the older traders will
reckon, I was Martin Peters on that trade, mate, the England midfielder of 1966 
who was said to be 10 years ahead of his time. I advocate that trade far too 
early. I thought the market would get over it quickly. You know what, I would 
have been stopped out very, very fast on that one. I would have taken my poison,
taken my medicine and I'll sit back and say, well you know what guys, I'll wait 
for you to show me the leader on this one now. But fundamentally, your argument,
it's too important to let this go- Yes. Still stands, right? So Turkish Lira 
comes back, Yen continues to weaken. This trade still stands. You lose a lot of 
money in the meantime. 

Yeah, exactly. I'm a trader. I look at it from a trader's perspective. I made a 
wrong call, I'd have been out by now. And to be honest, once bitten, twice shy. 
I would now be waiting to see where the market starts to turn rather than try to
pick it out myself. Okay, brilliant. Neal, thanks very much indeed. Neal 
Kimberley. Eurozone peripheral equities definitely not on hold ahead of the 
payrolls numbers. Spain's IBEX up as much as 0.07% and on track for its best 
week since July. Big inflows from Latin America one factor there. And Portugal's
Benchmark Index now up more than 8% this year. We were talking about the 
periphery of course, Neal and I. Bonds also rallying across Southern Europe as 
sentiment and liquidity both improve. Those are the things to watch, we think at
least, noon in the markets today. That is it from us. Join us every day at noon 
for Market Pulse. I'm Axel Threlfall, this is Reuters