We are in the Yen again | An active reporting week at the start of the new month

After taking us out of a previous trade in USDJPY for a small loss (0.3% of equity, which we regard as “the cost of doing business”) our Mandelbrot algorithmic routine has brought us back in again. This, as before, is a long trade, in anticipation of the weakening of the Yen and / or a strengthening of the US dollar.

It would appear that the dip that took us out previously was caused by end of month / end of quarter / end of fiscal year positioning by Japanese exporters and others, combined with a drop in the Nikkei index of Japanese shares, to which the Yen is particularly sensitive (a weakening index makes for a stronger Yen).

In the case of repositioning, think of the likes of Toyota, which produces its cars in Japan but sells them all over the world for Euros, dollars, pounds and so on, and who must settle with its sub-contractors and suppliers in Yens. Buying the Japanese currency to satisfy this requirement will tend to strengthen it, thus driving down the USDJPY pair.

In any event, we are now back in, courtesy of the Mandelbrot algorithm, again on the long side, and the initial move on Friday in our favour was quite gratifying.

A busy week at the start of the new month

Quite apart from the positioning that takes place at the end of the old month and quarter, not to mention the fiscal year as has been the case in many jurisdictions, the start of the new month sees a number of economic reports that will have the potential to move the Forex market.

This morning (Monday) will see inflation figures for the Eurozone. We have the GDP outturn for the year on Wednesday and both these numbers will feed into the ECB interest rate decision on Thursday and Mario Draghi’s press conference afterwards. The central bank is increasingly worried about deflation in the Eurozone and recent comments by senior figures have hinted that the strength of the Euro is now also an issue that is exercising minds.

Chinese Purchasing Managers Index figures will be well noted on Tuesday and Thursday, not least for their possible effects on the economies and therefore the currencies of the two Antipodean powerhouses, Australia and New Zealand. Our preferred way to deal with these is the play the NZ dollar against the Aussie. While both are dependent on China, the macroeconomic factors in these countries have now diverged to a significant degree. While no change is expected in Australian cash rates, released very early on Tuesday in GMT terms, RBA Governor Glenn Stevens’s speech on Thursday will also have relevance here.

For the second half of the week focus will, well and truly, shift Stateside, where on Wednesday the ADP employment report will once again attempt to anticipate official government employment figures for March. In recent months it has been very much less than perfect in this regard. Thursday sees initial jobless claims and then, on Friday, the big daddy report of them all, Non Farm Payrolls and the unemployment rate will be released. 190k new jobs are expected but many market participants will be disappointed if the magic number of 200k is not reached or breached on this occasion.