The RBA statement overnight was largely a recycling operation and we continue to scratch our head that that Lowe and company have gone to the trouble of explicitly maintaining a 3% GDP growth expectation for 2019 in the policy statement amidst all of the domestic uncertainty on the housing front and overseas, the geopolitical/trade concerns.
Alas, we may get a bit more color tonight, as Governor Lowe will be out speaking and we will also get a look at the Q4 GDP print from Australia in very early Asian hours tonight.
Yesterday’s US equity session finally showed a spike in volatility and did so near a massive resistance line in the S&P 500. Not coincidentally, the US treasury market turned around and rallied after several days of selling off last week.
In FX, no surprise to see the yen turning from broad weakness to broad strength on these developments and we would expect the yen to act as a proxy in FX for the combination of weakening risk sentiment and bond market strength (yesterday’s developments point to this correlation).
The calendar picks up pace today, with the US ISM non-manufacturing up today (January still at a very elevated 56.7 and today’s expected north of 57, that high expectation looks easy to disappoint?), Bank of Canada to follow tomorrow and then the European Central Bank on Thursday.
Long USD: via short AUDUSD (stops above 0.7150), long USDCAD (stops below 1.3250) and increasingly through short EURUSD (stops above 1.1400), although still an idea to look at 1-month downside puts in EURUSD with implied volatility so low.
Considering EURJPY downside again – this is contingent on a more profound shift in risk appetite and strength in the US treasury market – more confirmation if price action taken back below 126.00 and on the other side of ECB meeting.
EURJPY provides potential downside interest on the other side of the ECB meeting this Thursday if we have finally reached the peak of this rally in global equities and rally in risky assets in general and if the ECB is seen in tilting toward a perma-dovish stance. The first step for bears was yesterday’s reversal, but we won’t have much traction for more downside potential until we work back below 126.00.