The NY session witnessed some painfully light price action as traders await month-end later this week along with the all-important US nonfarm payrolls report on Friday. US equities managed a respectable rally, adding 0.6% in broad terms, and this coupled with the end to Japanese investor repatriation helped send the yen crosses higher.
With the Japanese year-end approaching (March 31st), the vast majority of the repatriation of global profits (positive for the yen) look to have come to an end. The focus back towards the fundamental picture in Japan, which remains exceptionally weak, along with what is likely to be continued equity market gains (revival of the carry trade) should see further yen weakness as we muddle through the balance of 2010. Our base case is that USD/JPY will breach 105 and EUR/JPY 130 by year-end.
In terms of the upcoming month-end fix, our model suggests weakness in USD and EUR and better supported CAD and AUD. The relative changes in global equity market caps indicate portfolio managers will need to mostly sell US dollars to rebalance their asset allocations.
The release of nonfarm payrolls will garner the rest of the attention and there are estimates being bandied about of a number north of even 300K. The bar is being set quite high on the back of what is expected to be some payback for the weather-depressed February number and the beginning (in earnest) of hiring for the 2010 census. Expectations are to a point that should we get a number below 200K, it would likely be viewed as a major disappointment. Keep in mind that equity markets are closed this Friday (Good Friday) and bonds will likely head out early. The action will be in the currency markets!