Risk appetite is returning at a faster pace than expected, thanks to the temporary pull back in Russia risk and a well balanced statement from the Fed last week. Junichi Ishikawa More Quotes by Junichi Ishikawa More Quotes From Junichi Ishikawa This week's main event is the Jackson Hole symposium and Fed Chairman (Jerome) Powell's speech. Junichi Ishikawa top-news What Powell has to say is in focus as the discrepancy remains between what he said on interest rates and what the markets have come to expect the Fed will do. Junichi Ishikawa top-news Key points for the markets this week will be how the remaining U.S. corporate earnings releases turn out, and whether they are in line with recent upbeat data, while corporate earnings and fundamentals remain key, political developments, notably the U.S.-China trade situation, remain potential risk factors. Junichi Ishikawa top-news The euro showed such a big reaction to the ECB meeting as its stance came in sharp contrast to the Federal Reserve, which had struck a hawkish tone just the day before. Junichi Ishikawa business Instead of reacting immediately to the Fed, many in the market had opted to first see out the ECB meeting, considered the main event of the week. And they duly reacted. Junichi Ishikawa business The BOJ might have tried to do something by opting for negative rates, but in reality the initiative belongs elsewhere. Dollar/yen is dictated by global risk sentiment, which also decides the trend in the currency market as a whole, the BOJ can only do so much. The markets see through the fact that the central bank's efforts would not be effective in the absence of domestic demand, which is up to the government to create through its policies. Junichi Ishikawa most-read-articles China looks to be the main theme for 2016, as developments there could unsettle equities while disrupting the Fed's intended rate hike schedule, china risk adds a layer of support to the yen, which already looks to appreciate this year as Japan's current account surplus grows at a faster-than-expected pace. Junichi Ishikawa company-news With the U.S. markets closed on Monday, risks emanating from China will be the main currency driver. Shanghai stocks will be in focus and especially how China's trade data affects sentiment there. Junichi Ishikawa company-news Our index based on sentiment currently shows that 62 percent of global retail clients favour going long on dollar/yen while 38 percent prefer going short, last week's dollar/yen plunge was such that it was natural for some to instinctively buy the dollar. Junichi Ishikawa company-news We have seen the yen, and particularly euro, gain on flight from risk which results in unwinding of carry trades. The euro has developed a reverse correlation with equities, particularly after the rout in China. Given its ample liquidity, it will likely continue to gain in times of 'risk off,'. Junichi Ishikawa company-news Pressure to unwind dollar long positions is mounting and focus is on how long this trend will continue. 'China risk' has dampened hopes for a September rate hike and upcoming data could further chip away at expectations for a Fed tightening. Junichi Ishikawa most-read-articles There is little reason to buy commodity currencies like the Aussie right now, and its gains were fuelled mostly by short covering, the only short-term lift the Aussie, kiwi and the Canadian dollar could receive are from participants shifting around their positions ahead of Friday's U.S. jobs data. Junichi Ishikawa most-read-articles The approach to 125 yen takes dollar/yen into politically sensitive territory. Any big gains by the dollar just as the Trans-Pacific Partnership (TPP) talks are climaxing could stimulate those on both sides of the Pacific opposed to the negotiations, and the authorities would not want that. Junichi Ishikawa business The dollar should have a relatively easy time topping 124 yen, especially if Yellen sounds hawkish during the testimony. Junichi Ishikawa business U.S. futures are higher, but we are waiting to see if stocks in Shanghai continue to recover, and if the VIX comes off its highs, before we can say that risk sentiment has improved, even as the Greek news has raised hopes. Junichi Ishikawa business Euro/dollar responded less compared to dollar/yen as underlying optimism that a [Greek] deal will be sealed by the month's remains intact amid pessimism over the talks breaking down. Junichi Ishikawa most-read-articles Crude oil is falling again and if U.S. equities remain unstable amid differing prospects for a Fed rate hike, it will weigh on global equities. Junichi Ishikawa company-news Only the negative aspects of cheaper crude oil have been in focus so far, but attention could turn to its positive attributes if U.S. data on Wednesday can confirm an expansion in private consumption. Junichi Ishikawa business With worries over the Chinese economy slowing down and risks from Greece still in place, further evidence of continuing recovery in the U.S. economy will be needed if risk appetite is to recover fully. Junichi Ishikawa business This is a turning point for how we view digital currencies, from here on, bitcoin will be genuinely considered as an asset available for selection by asset managers in their portfolios. Junichi Ishikawa
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