Jobless Claims vs Pointless 8220 Yields 8221 Claims

Falling jobless claims figures in the UK & US are rendering claims by the BoE and Fed on rising yields to be pointless.

Efforts from BoE governor Carney and Fed Chairman Bernanke to talk down yields are increasingly futile as jobless claims hit 6-year lows and 3-year lows in the US and the UK respectively.

Carney’s forward guidance message is not so different from Bernanke’s:

i) Rates will not be raised before 2 year’s time;
ii) Bernanke refereed to 6.5% unemployment and Carney referred to 7.0% unemployment as thresholds;
iii) Both used 0.5% as the maximum excess over 2% inflation.

We mentioned in yesterday’s article that the new focus on 2-year yield spreads in UK-US spreads shall carry more weight in driving GBPUSD for as long as data improvements in the UK continue to complicate the “yield-capping” aspirations of the BoE.

GBPUSD faces further upside near 1.5680-1.5700, while maintaining support above 1.5300. GBP support will also emerge from the Fed’s insistence on maintaining policy accommodation due to the risk of averting disinflation. Thus, even a decision to taper purchases in September may end up being USD neutral if the tapering is deemed to be more modest than expected ie $5 bn instead of the average $10bn.

Euro longs are preferred against CHF than against USD As the Eurozone emerges from recession is combined with the increased search for yield among G7 fixed income paper, it implies preferred upside in EURCHF. The fact that EURUSD has withstood periodic bouts of volatility against USD implies better prospects against the weak CHF. Not to mention that the Swiss National Bank has recently reiterated its commitment towards capping CHF rebounds. EURCHF weekly charts stand well above the 55 and 100 MAs, but still below the 200-MA of 1.27.  The path towards 1.2550 remains intact.

USDJPY is due for another tumble before extending fresh gains.  Aside from the fact that Japan Fin Min Aso dampened claims of a cut in the corporate tax–which is a negative for the growth element and the Nikkei–the recent jump in bond yields may be followed by a brief correction lower, thereby, weighing on yen crosses. And noting that USDJPY has become widely more directly correlated with general USD movements, the current leg down in the greenback could trigger renewed visit to 95.00.