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Will Dollar Yen Hit 100 Today?

Last updated 5/1/2009 5:43 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Japan's unemployment rate hits a 7 year high
• Stress tests delayed as conslusions debated
• Nikkei and European equities bith igher 1%+
• Oil still above $50/oz
• Gold at $884/oz.

Overnight Eco

• AUD AIG Manufacturing Index 30.1 vs. 33.1
• JPY Household Spending -0.4% vs. -2.7%
• JPY Tokyo Core CPI -0.2% vs. 0.1%
• JPY National Core CPI -0.3% as expeceted
• JPY Unemployment Rate 4.8%
• JPY Average Cash Earnings -3.7%
• AUD Commodity Prices -15.0%
• GBP Manufacturing PMI 42.9 vs. 40 eyed
• GBP Net Lending to Individuals 0.80B vs. 1.6B

Event Risk on Tap

• USD Revised UoM Consumer Sentiment expected at 61.7
• USD ISM Manufacturing PMI expected at 38.0
• USD Factory Orders expected at -0.7%

Price Action

• USD/JPY runs through 99.55 on risk flows and fix demand in thin markets
• AUD/USD continues to perfrom well above 7300 but weak PMI data weighs
• GBP/USD rallies above 1.4850 on better PMI readings
• EUR/USD weighed by EUR/GBP flows as 1.3300 remains cap for now

A very thin and quiet session in the currency markets tonight  as parts of Asia and Europe were closed for May day holiday sapping much of the liquidity from the trade. Risk appetite however remained buoyant as both Nikkei and DAX rose by more than 1% propelling USD/JPY past 99.50 by midday   European session.

Despite, positive investor sentiment, economic news from Japan was woeful with unemployment rate reaching a 7 year high at 4.8% while overall household spending declined for 13th straight month. As we noted earlier, the double whammy combination of global economic contraction  and an appreciating  yen has hit export dependent Japanese economy particularly hard and as a result its appears to be in the weakest condition amongst the G10 nations.  Accelerating job losses and dampened consumer demand certainly create doubts as to whether the Japanese economy  can stage even  a mild rebound in the second half of the year.

Nevertheless, the same forces that created so much economic pain in the land of the rising sun may now be reversing as USD/JPY approaches the 100 level. As we wrote earlier, “Should the pair remain at the current levels or trade higher, it could serve as a critical stimulant to the Japanese economy. Already some evidence of a pick in economic activity was evident in yesterday’s Industrial Production data which improved to 1.60% from 0.8% eyed. That’s why Japan, more than any other G10 nation is hostage to the exchange rate of its currency as both fiscal and monetary policies prove ineffective.”

With the pair  trading near 99.50  ahead of the North American session the temptation to run the stops at 100.00 will be enormous if US equities rally. However, the key to Japan’s long term recovery will depend  on whether the exchange rate can sustain these levels for more than a day. If equity markets go into their typical summer swan dive yen could strengthen once more inflicting further punishment on the Japanese economy.

In UK today, the news was decidedly better with PMI Manufacturing rising to 42.8 from 40 eyed. Most encouraging of all in the report was the was the jump in order balances from 39.4 to 46.3 – its best reading since last October. The news continues to confirm the bullish argument that Q1 was the bottom of the UK recession as economic activity is beginning to show tentative signs of a pick up. Cable trade better post news rising above 1.4850 level and now targets 1.4900 figure if US session proves supportive to risk.

In North America today, the key event will be the ISM manufacturing data which given the sharp increase in Chicago PMI yesterday could print an upside surprise. The key question going forward will be whether US equity investors will want to hold on to their longs  into the week-end. Yesterday, the equity rally showed signs of exhaustion, but if today’s eco data proves positive risk appetite may be sustained for another session and USD/JPY could mount a run to 100.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.