Brown Brothers Harriman - "Observations on the speculative positioning in the CME currency futures:

1. In the CFTC's reporting week, the gross short currency futures positions were cut across the board. Gross long position adjustment were more mixed; the euro, yen, sterling and Swiss franc longs expanded, while the Canadian and Australian dollars and Mexican peso were reduced.

2. There were four significant gross position adjustments (more than 10k contracts): Both the gross euro…

Brown Brothers Harriman - "Last week, we warned that although the technical factors looked constructive for the dollar, the fundamentals, in the form of the ECB not delivering on the negative deposit rate (that Draghi said he had an open mind about) and additional aid for small and medium size businesses, were less supportive. We also anticipated that the jobs data would not support notions from some Fed officials (and market participants) that tapering of the purchases of long-term assets…

BBH - "The main development in the foreign change market over the past week has been the short squeeze of the yen, and to a lesser extent, the Swiss franc.

The move coincided with a backing up in JGB yields, with the 10-year approaching the 1.0% threshold, a nearly three-fold increase since the BOJ announced its more aggressive monetary stance in early April. The Nikkei took it on the chin, falling 12.5% between Thursday's high near 16k and Friday's low just below 14k.

Many of the…

Brown Brothers Harriman - "The dollar is mixed against the majors heading into the US holiday weekend. The euro firmed a bit after the stronger than expected German IFO confidence reading, but has been unable so far to breach the $1.30 area. The Swiss franc and the yen are up on the day as well, while the dollar bloc is underperforming and lower on the day. EM currencies are mostly firmer, but remain largely within recent ranges.

(...) The euro has bumped up against the week's high near…

Brown Brothers Harriman - "Euro: A large head and shoulders pattern is being carved out. The neckline is seen near the late March and early April lows around $1.2740. Below there is the low from last November near $1.2660, which is just below the $1.2680 retracement objective ($1.2680) of Draghi's OMT induced rally. The measuring objective of the head and shoulders pattern would carry the single currency below $1.20, our year-end target. The euro's 50-day moving average has…

Brown Brothers and Harriman - "The dramatic sell-off of the Australian dollar is the latest of a series of price developments that have surprised the market. (...) The Australian dollar was the market's darling. It was an accessible even if not perfect way to get exposure to China and its vociferous demand for commodities. It was one of the few triple-A rated countries left standing after the financial crisis. Its interest rates were relatively higher in an environment in which there was a…

Brown Brothers Harriman - "1. The gross short yen positions increased by 10.4k in the week ending May 7. This is consistent with ideas that the speculators were anticipating a break out after the Golden Week holidays ended. Some cast conspiratorial allusions to the fact that the dollar broke above JPY100 prior to news that Japanese investors had bought (a relatively small amount) foreign bonds in the past two weeks. Anticipation more than malfeasance is the more likely explanation.

2.…

Brown Brothers Harriman - "The Dollar-Index did rally in the second half of last week, but ran into a wall of offers near 82.50 a key retracement objective of the previous week's drop. Provided this area holds, we are more inclined to see it fall toward 81.20 and maybe 80.70.

The decline in the euro in the second half of last week largely held a trend line drawn off the April 4 and April 24 lows. The trend line comes in near $1.3070 on Monday and $1.3125 by the end of next week. Initial…

Brown Brothers Harriman - "Looking forward, the bad news is that the technical outlook has been not clarified by the price action in recent days The good news is that there are a number of key fundamental developments in the coming days that will help strengthen or crystallize the underlying trend. These events include the euro area PMIs , the US employment data and the ECB and FOMC meetings.

Our near-term bias is for a stronger euro, but the price action itself has been poor.…

Brown Brothers Harriman - "Nippon Life, Japan's largest lifer insurers, provided some broad details of its investment strategy in the new fiscal year. Meiji Yasuda Life Insurance and Sumitomo Life Insurance will hold a briefing Wednesday. The market is arguably paying more attention to the plans of the insurance companies, one of the institutional investors in Japan (along side pension funds and the banks), given the BOJ's announcement of aggressive purchases of JGBs this year and next.…

Brown Brothers Harriman -

"- There were three developments from late Friday that will impact the investment climate this week.

. First, the G20 was not critical of Japan's efforts to reflate its economy

. Second, Fitch cut the UK's credit rating to AA+ from AAA

. Third, Italy took an unprecedented step this weekend to give the current president another term

- Meanwhile, PD leader Bersani resigned after he failed to carry a substantial number of deputies in support of…

Brown Brothers Harriman - "The krona is poised to correct higher against the US dollar in the week ahead. We look for the dollar to be pushed lower from the SEK6.50 area currently to SEK6.41-SEK6.43 in the near-term. The euro is looking more resilient against the krona. The euro-SEK chart has a downtrend line drawn off the mid-Dec high and the highs from the second half of January that comes in now near SEK8.50. This offers initial support but additional support is seen near SEK8.48…

Brown Brothers Harriman -

"- Sweden's Riksbank kept rates steady at 1.0%, as expected

- Bank of England minutes from the April meeting show that the vote for extending QE remained the same as the March meeting

- Bank of Canada holds its policy meeting today and is expected to keep rates steady at 1.0%

- The Fed releases the Beige book report for the upcoming April 30/May 1 meeting

- There is keen interest in how Japanese investors are going to respond to…

Brown Brothers Harriman - "The Australian dollar reached almost $1.06 before the unwinding of cross positions against the yen took a toll (as it appears to have done on the other major currencies as well to varying degrees). Some observers linked the heavier tone of the Aussie before the weekend to the slide in steep slide in gold prices.

While possible, our work shows a very weak correlation between Australian dollar and gold. In fact, on a rolling-60 day basis, using percentage change,…

Brown Brothers Harriman -

"- The 10-year US-Japanese yield differential is at its best level since the BOJ announced its Q-squared at a little over 125 bp

- We suspect many observers give too much credence to the FOMC minutes where the ongoing discussion of exit strategies and timing are mentioned

- We preview today’s data

- The Australian dollar has extended its recent advance

- The impetus for sterling’s rise is unclear

- The BOK left rated unchanged at 2.75% as…

Brown Brothers Harriman -

- Greece has denied the German paper report yesterday that depositors were going to get bailed into the on-going bank recapitalization efforts

- Euro zone data continue to weaken, for the most part

- In the US, FOMC minutes are due out

- The big event in EM today will likely be the Brazil March IPCA inflation report, due at 13:00 GMT

- Chinese March trade data released this morning delivered mixed message

- Strong China import data has…

Brown Brothers Harriman - "Euro-Sterling: On a 60-day and 90-day rolling basis, the correlation is the lowest since 2000 at 0.21 and 0.34 respectively. Rarely has the 60-day correlation fallen below 0.40 since the advent of the euro and rarely has the 90-day correlation fallen below 0.50.

The 60-day correlation was fairly stable most of last year, even as the EMU debt crisis ebbed and flowed. The breakdown began in January as sterling sold off while the euro did not peak until early…

Brown Brothers Harriman - "There have been four surprises for markets already today, and that’s before the BOE and ECB meetings:

- The first came from the BOJ which managed to surpass expectations

- Australia data provided the second surprise, coming in much better than expected

- The third surprise today is the release of the service sector PMIs in Europe

- Fourth, the Hungarian central bank held its much awaited extraordinary meeting and made some unexpected announcements…

Nice summary....

Francesc

Brown Brothers Harriman - "- Weaker UK PMI data is consistent with our view of a soft economy

- Of the three major central banks meeting tomorrow, only the BOJ is expected to change policy; there, we see scope for market disappointment and potential yen gains

- Market focus will turn to US data, including ADP report and the ISM non-manufacturing

- Australia February trade out overnight showed an unexpected…