Yen turned the downside against the US dollar in reaction to weak economic data from China. Chinese investment data, industrial production and retail sales did not match expectations, fueling fears about the negative impact on the neighboring Japanese economy. Industrial production growth in China slowed to 6% in April, according to the National Bureau of Statistics, disappointing analysts who had expected growth of 6.5% in annual terms, following an increase of 6.8% in the previous month.
The investments of private companies in fixed assets continued to slow down, which means the continued skepticism of the private sector regarding the economic outlook. Investments of private companies grew by 5.2% annually during the period from January to April, down from 5.7 percent growth in the first quarter. It seems that all the engines suddenly lost momentum and the prospect of growth has become vague. Retail sales in April increased by 10.1% in annual terms, while economists expected an increase of 10.5%, as it was in March.
Nikkei reported on Sunday that Prime Minister Shinzo Abe has decided to postpone to a later date an increase in sales tax, scheduled for next April. The article notes that he considered the action as a threat to efforts to overcome deflation. Applications for sale in the region of 110.00 limit the space for the growth of USDJPY pair, and investors need new trade guidelines from Japan to make the yen weaken.
We are guided by the fundamental factor of the Japanese yen strength in trading despite its slight decline. Two Put binary options on EURJPY and NZDJPY currency pairs actually mean a positive outlook on the prospects for the Japanese currency across the board. The currency pairs with the yen had the undulating nature of the movement so this trading approach brought positive effect.
US Dollar Begins to Rise
We were not among the biggest fans of the American currency for a long time. In our view, the doubled mandate of the Fed assumed structurally softer central bank’s position in comparison to the ECB or the Bank of Japan, while the performance of the current account remained negative for the US dollar and favorable for the euro and the yen. The US dollar rose by 25%, but the combination of growing fears about the devaluation of the yuan, easing the Fed’s position and the mistakes made by the ECB and the Bank of Japan has led to the fact that the US dollar index is now only by 17% above the level in April 2014.
Investors have lost optimism about the US currency. The belief that the Fed to raise interest rates faded (futures market currently accounts for rate increase by 0.40% until the end of 2017) and the volume of speculative net short positions in the US dollar reached its highest level since 2013.
Market participants once again gone too far in the expectations, and it is believed that the overall situation for the US currency appears to be quite constructive, even with more low-key approach to the raising rates from the Fed. Although the Bank of Japan restraint after having previously made a tactical error to drive rates in the area of negative values, in the end, the situation will require new actions. At the current very low level of rates, central banks policies turns on expectations game and market are waiting for surprises from the Bank of Japan that will help USDJPY to resume growth.
The US dollar has a most valued place in our trading. We bought 4 binary options on currency pairs with the American currency, all of them – in favor of the dollar. Greenback showed its strength particularly against commodity currencies, therefore two Call binary options on USDCAD currency pair and one – on NZDUSD were very timely.
Referendum Is Close, Puts on GBP Preferred
Pound lately cannot boast of a confident positive dynamics as the referendum approached in the UK, anxiety regarding the outcome of the vote is growing. British economic data give an additional reason for the gain of bears and we pay attention to the fact that now, when the market got rid of the excess of short positions in the pound, it could have been more susceptible to negative factors. The results of our technical analysis in GBPUSD indicate the presence of potential further decline. The same was said about the fundamental economic picture.
We decided to hold off on trading the pound due before the upcoming referendum in the United Kingdom. Uncertainty about the future is on the agenda so we can begin to trade binary options on the pound sterling in only two cases: after the publication of clearly evidenced opinion polls or in the absence thereof, only after the referendum, which will take place on June 23.