Recap 1-18-13: Speculators and the Yen

NB: There will be no commentary on Monday


Some verbal comments from Coeure helped stabilize Euribor futures today, although price action was constructive from the open. White Euribor futures are up a bp from yesterday’s settle level, and several bps above the lows from late yesterday. The ECB also announced that it will release the LTRO repayment data at noon CET on Friday, Jan 25th. Consensus estimates are hard to peg, but I’ve seen numbers between 100bn – 200bn. Calendar wise, expectations are for a front-loading of repayments.

Separately, I did a little modeling work on USDJPY today that I thought was interesting. I charted the error term from a long term ‘fair value’ model against speculative position, using data from the CME. I expected to see a small amount of correlation, but the visual correlation was higher than I expected:

What was particularly interesting to me is that speculative positioning appears to lead the mispricing term. In other words, it appears that speculative positions both push prices away from fair value, as well as towards it. I’d expected that speculative positioning is only responsible for pushing prices away from fair value, so I thought this was interesting. The most recent period was an exception to this pattern, which is not surprising given that politics has been the main driver. This pattern also suggests that using FX speculative positioning as a contrarian indicator may be wrong.

The last time speculators lagged was during the 1998 Asia crisis, when the error term broke 20 figures. Using today’s spot, the error term is 18 figures. That’s how much USDJPY could fall if the BoJ fails.


  • US U Michigan Confidence dropped to 71.3 in Jan vs 75 exp and 72.9 prev
  • ECB Executive Board Member Benoit Coeure he doesn’t expect LTRO repayments to effect the Eonia Rate. “Will it have a big impact on the money market? I don’t expect it to have a big impact.”
  • China Data for Dec:
  1. Retail Sales rose 15.2% YoY vs 15.1% exp and 14.9% prev
  2. IP rose to 10.3% vs 10.2% exp and 10.1% prev
  3. Fixed Asset Investment stable at 20.6% vs 20.7% exp and prev

Upcoming Data:

  • Mon: BoJ
  • Tue: German ZEW, US Existing Home Sales, Australia CPI
  • Wed: BoE Minutes, UK Jobless Claims, BoC, Japan Trade Balance, China HSBC Flash PMI
  • Thu: EU PMI, US Jobless Claims, Markit PMI, BoJ Minutes
  • Fri: ECB LTRO Announcement, German IFO, Canada CPI, US New Home Sales,