Tax free investing, the latest Japanese arrow?

The introduction of the NISA (Nippon Individual Savings Accounts) program in Japan on Monday has been seen by some as the key for the “recovery” in the Nikkei overnight, albeit day 2 of the trading year for our Japanese counterparts… In short the program is a tax free attempt at generating interest in predominantly the younger crowd to get their cash from out under their mattresses and invest it directly in local equities as well as potentially overseas. All of this seen to be JPY negative and part of the fight against deflation. Sure. If that works then why not I say. Bottom line however is that the USDJPY and EURJPY are both higher and all of it to do with a weaker JPY leg. Interestingly strikes and expiries both vanilla and exotic all week around the 104.50/105.50/106 levels have got the market interested in keep the headline pair pinned.

Yesterday we saw a much better trade balance out of the US led in large part by the energy revolution the country is experiencing. With a bettering of the terms of trade every man and his dog was out in the afternoon revising a higher US annual GDP rate. As Kit Juckes points out in his morning note today, when the entire market is already seemingly bulled up on the Greenback, how much more enthusiasm can data like yesterday generate in the USD. Time and forthcoming data today and on Friday (ADP and NFP) will likely answer that very question in the short term.

Elsewhere the CAD has taken a battering and form all accounts this will likely continue in the near to medium term. A very poor IVEY report yesterday coupled with central bank sentiment that rates will not rise anytime soon has seen a position that nobody had on the books, all of a sudden look very appealing. Contacts are telling me this morning that in the USDCAD 1.0750/70 is full of bids and if/when we get there and even into 1.0720 those that haven’t got the position on yet (or not in sufficient size) will be only too happy to get long of the cross.

On the day we’ve got Euro zone retail sales and unemployment as well as German factory orders, while the bulk of the market will be waiting for the ADP report in the US session as a precursor to the NFP on Friday. Watch the JPY pairs (as always) on the employment prints from North America. And tonight we see the FOMC minutes released from the spectacular (not) December meeting where we witnessed a $10bn cut in the QE program. The market believes we have a far more hawkish FED on our hands in 2014, and as always the risk trade in this scenario is if they discover that perhaps they’re not as hawkish as first assumed.

In terms of crosses on the day…
Tough really as everything the major pairs retain tight ranges ahead of key risk events in the coming days, however;

EURUSD: 1.3550/70/80 all have bids lined up whether they’re from short profit takers or fresh longs for range trades. Sellers once again are noted into 1.3625/35 and more so into 1.3650/70.

GBPUSD: I think we head higher, but it won’t ramp massively to start, more like a slow grind. On the day 1.6380 by 1.6450 on the wide should see you do ok.

AUDUSD: While my personal belief is that it jobs around between 0.8900 and 0.8950 on the day (especially as they’re major expiries this afternoon) I’m being told that the path of least resistance on the day is actually lower, sub the 0.8880 area. Not sure.

EURJPY: While I think we head higher, should we see it 142.45/55 marks good buying interest and some stops are noted below the 142.00 area. Topside, not much by way of offers (or at least I’m not hearing of any).

Helmets on and good luck out there.