By Dino Zannoni
Market Movers: JAPAN RAISES AGAIN
FED IS ALWAYS THE PROTAGONIST
Among the most relevant macroeconomic data, we can remember especially April 12th, when at the same time producer prices, retail sales and consumer confidence will be released. We still remember that in the background, we can see the expiration date on May, when the debt ceiling will necessarily have to be revised upwards as required by the Constitution.
THE AMERICAN MINISTER OF THE TREASURY REACHES EUROPE
After the disappointment due to the lack of more aggressive monetary policy by the ECB, Italyis still at the center of the attention as a potentially destabilizing element for the Eurozone and certainly the meetings due this week should not be underestimated. The first meeting concerns the visit of the U.S. Treasury Secretary, Lew, on April 8th and 9th, while the second one concerns the Ecofin meeting of the Eurozone ministers scheduled for April 12th and 13th. Among other macroeconomic data to remember, the industrial production in Germany (April 8th ), Italy and France (April 10th ). Concerning EurUsd, 1.2680 (61.8% of 1.2042-1.3712) confirms the bull market in the medium term.
ATTENTION TO THE CURRENT ACCOUNT DEFICIT OF JAPAN
The risk for Japanis a current account deficit even lower than the one of the first quarter of 2012, that in fact coincided with the point of maximum strength of the Yen against the U.S. dollar at 75.5. The last three months have recorded a continued deterioration of the Japanese accounts and, on April 8th , we will be able to see if this dangerous trend for a very indebted country will continue. So far, the weakness of the Yen has been linked to the expectations of ultra expansive measures by the Bank of Japan; these measures were also confirmed be the new governor that decided to double the share of government bonds in its portfolio buying very long deadlines. But now comes the difficult and one of the elements that confirms this is the theory of the purchasing power parity (PPP). As we can see from the graph, while UsdJpy finds in the long term bearish line an effective resistance, the percentage of overvaluation of the U.S. dollar on the Yen has reached the threshold of 8%. Why is this level so important? It is important because, since 1998, an underestimation of the Yen equal or higher than 8% has intercepted the primary tops of the market, as the vertical lines are testifying.
Another week full of information coming from emerging markets, and that could create volatility on local currencies:
- South Africa: manufacturing (April 11th )
- Brazil: Inflation (April 10th ) – Retail Sales (April 12th )
- Turkey: Current account deficit (April 11th )ù
- China: Inflation (April 9th ), trade balance (April 10th )
- India: industrial production and inflation (April 12th )
Trade of the week : long EurJpy
Still on the Yen, the graph based on the Ichimoku cloud of EurJpy shows us clearly how the reaction of the Thursday cross took place at the lower band of the cloud. This helped to break upwards the consolidation triangle that was formed between 120 and 125 and the current direction should be 132, the 50% of retracement of the entire bear market in 2008 – 2012. The oscillators are discharged toward favorable conditions to accommodate a new upward blaze of EurJpy. This element could also be favored by restarting EurUsd upwards.