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Will Data Help Dollar Yen?

Last updated 10/20/2009 5:30 AM ET (GMT -5) 12 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Fujii - Yen strength result of dollar weakness
• UK Public Net Borrowing better but highest on record
• Asia and European bourses rise on Apple news but 5 Dow names report before NA open
• OIl takes out $80/bbl
• Gold higher at $1063/oz.

Overnight Eco

• AUD Monetary Policy Meeting Minutes remain hawkish
• EUR German PPI very weak -0.5% vs. 0.0% eyed
• GBP Public Sector Net Borrowing 14.8B vs. 15.2 B eyed
• GBP Prelim M4 Money Supply bit better at 0.7% vs. 0.6%

Event Risk on Tap

• CAD Leading Index
• CAD Wholesale Sales expected at 0.8%
• USD Building Permits expected at 0.59M
• USD PPI expected at 0.1%
• USD Housing Starts expected at 0.62M
• CAD BOC Rate Decision expected at 0.25%

Price Action

• USD/JPY Fujii comments send it to within 10 pips of 90.00 handle
• AUD/USD rallies on hawkish RBA to 93.00 but can't hold the barrier
• GBP/USD remains around 1.6400 as PSNB bit better
• EUR/USD cant break 1.5000 just yet

Another lackluster night of trade on the FX market as the dollar remained near yearly lows against most of the high beta FX, but both euro and Aussie failed to hold key levels in what may be an early sign of  a pause in the recovery trade. The dollar also slipped against the yen on commentary by Finance Minister Fujii who noted that dollar weakness was behind the recent strengthening of the yen.  

Mr. Fujii stated that, “The United States is caught in a dilemma. You can't deny that the current yen rise was caused by a weak dollar." His remarks sent USD/JPY& nbsp; to 90.10 in a knee jerk reaction as traders once again interpreted Mr. Fujii’s words as an open invitation to push the pair lower. Although Mr. Fujii was simply reiterating  the obvious, his leaden ear to the sensitivity of the market continues to create volatility for the yen.  

Note that a few weeks ago Mr. Fujii had to retract his hawkish statements when the pair fell by 2 yen in a matter of hours. It is clear that USD/JPY below 90.00 would be injurious to the Japanese economy but Mr. Fujii remains cavalier with his rhetoric. Yet his words may be losing their punch as USD/JPY held support and bounced to 90.30 by mid morning European trade. We continue to believe that any upside surprises in the US data will translate into further gains in the pair and to that end today’s PPI and housing starts data could be key to its direction in North American trade.

Meanwhile the RBA minutes of the most recent policy meeting were relatively hawkish in its bias noting that it was “possibly imprudent” to keep borrowing costs at a half-century low. The Aussie spiked to 93.00 but sold off on profit taking and will now likely remain  quiet until the Chinese GDP data due Wednesday night. The Chinese data could prove pivotal to the whole recovery trade with markets anticipating growth to hit 9% in Q3. Should that number miss it could sent the  commdollars tumbling relative to the rest of the G-10 FX.

In North America today, earnings releases  are likely to be as important as the eco data on the calendar. With five Dow components reporting before the bell futures could set the tone for both indicates and FX, although the correlation between  risk FX and equity flows has become decidedly less pronounced over the past two sessions. Still, a positive equity open could catapult the EUR/USD over the 1.5000 barrier, but we continue to believe that the long euro trade looks tired at this point and is especially vulnerable to a pull back if European data at the end of the week proves disappointing.

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Comments (12)

hsbc

October 20, 2009 at 05:58 AM ET

Mkt rumor is 9.1% for China GDP. This is normally where it will turn up at.

bschlossberg

October 20, 2009 at 07:53 AM ET

We'll see. But that would be bullish risk

FXDragon

October 20, 2009 at 07:49 AM ET

Shorting euro recommended around 1.50's. Solid technicals supporting a usdjpy rally targeting 95. Please keep quiet Mr.Fujiii:) Good luck... Did Bernanke say anything noteworthy about the dollar last night in SF? Is Kathy on vacation?

bschlossberg

October 20, 2009 at 07:59 AM ET

No on Bernanke. Yes on Kathy :)

arete11

October 20, 2009 at 08:49 AM ET

Hi Boris,
I see the acronym "ACB" buyers or sellers on the newswires and I believe you have used the term in the past. Would you tell me what it means? Also, the term "RHS fixing. Thanks, and thanks also for your insightful daily commentaries.

bschlossberg

October 20, 2009 at 09:27 AM ET

RHS stands for "Right-hand-side" which is the ask or offer (buy price).

Not sure about ACB

hsbc

October 20, 2009 at 09:39 AM ET

i dont think u quite understand data but i dont mean this in a nasty way. normally rumored numbers are the actual numbers. that is how china works.

bschlossberg

October 20, 2009 at 09:47 AM ET

No I fully understand that but I dont buy the notion that Chinese manipulate their data so blatantly. That 's why I will wait for the results

hsbc

October 20, 2009 at 10:14 AM ET

why is it manipulation?

bschlossberg

October 20, 2009 at 10:32 AM ET

Because the presumption is that the number is already fabricated and has been whispered. I don't want to discuss this any further, lets just wait for the data

Doobp

October 21, 2009 at 02:43 AM ET

I thought china's manipulation is not stranger to many.

bschlossberg

October 21, 2009 at 04:20 AM ET

Lets all wait for the results instead of focusing on who is manipulating what

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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.