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Yen Gain on Better GDP - 89.00 in Sight?

Last updated 11/16/2009 4:35 AM ET (GMT -5) 1 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• APEC reaffirms commitment to stimulus
• Japan GDP much better at 4.8% annual rate
• Asia up slightly at start of week
• Oil at $77.50/bbl
• Gold continues climb to $1133/oz. new high

Overnight Eco

• NZD PPI both input and output sharply lower at -1.1% and -1.4% vs. 0.0% projected
• JPY Prelim GDP better at 1.2% vs.0.7% eyed
• JPY Prelim GDP Price Index 0.2% vs. 0.1%
• GBP Rightmove HPI -1.6% vs. 2.6% last
• EUR CPI Flash n/a

Event Risk on Tap

• CAD Manufacturing Sales expected at 0.5%
• USD Retail Sales expected at 1.0%
• USD Empire State Manufacturing Index expected at 29.9

Price Action

• USD/JPY drops to 89.50 on better Japanese GDP
• AUD/USD makes a new high at 93.54 as risk flows return
• GBP/USD above 1.6700 but Rightmove disappoints
• EUR/USD tests 1.5000 yet again as recovery trade gets a boost from APEC, Japanese GDP

Risk FX rose in Asian dealing on the first trading day of the week, buttressed by commitment to fiscal stimulus from the APEC meeting and much better than expected Japanese GDP numbers indicating that the global recovery continues  to expand across the G-10 universe. The APEC members agreed that it was too early to remove fiscal stimulus recognizing the fact that the global recovery remains fragile for now.  

Singapore's Prime Minister Lee Hsien Loong summarized the mood by noting that, “The economic recovery is not yet on a firm footing, much of the rebound has been driven by fiscal stimulus measures and the effect will wear off in the coming months. Countries are watching the situation carefully and will only gradually unwind their stimulus measures, hopefully in a coordinated way so that you do not have disorderly change in the situation."

Meanwhile in Japan, the GDP data showed a much better than expected rise to 4.8% annual rate from 2.9% forecast. The increase was driven by surprising rise in domestic consumption Consumer spending, which makes up about 60 percent of the economy, climbed 0.7 percent, fueled by government incentives to purchase energy-efficient cars and appliances.

USD/JPY traded below the 89.50 level in response to the better than expected eco data and could test the 89.00 figure later in the day as North American markets absorb the news. With  pressure on the Chinese to revalue the yuan in the face of persistent dollar weakness, the yen becomes the biggest beneficiary in G-10 of such a policy move. If Chinese authorities provide any indication that they are willing to loosen the current trading band and allow they yuan to appreciate albeit at a very gradual pace, the yen could firm even further targeting the 85.00 level into the close of the year.

In North America today the key event risk is the US Retail Sales number expected to print at 0.4% versus 0.5% the month prior. We anticipate the number could beat expectations which could help risk FX push higher  and could put the EUR/USD above the 1.5000 handle once again. On the other hand if the data misses once, USD/JPY could easily break the 89.00 figure to the downside as it gets the double  push from risk aversion flows and the outperformance of economic data overnight.

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Comments (1)

Stephan Smith

November 16, 2009 at 09:53 AM ET

Gold makes new highs, Japan's GDP increased better that expected, US retail sales grew only 0.2 percent in the month of October (minus the auto sales) which is half the growth of the previous month, not to mention that the US interest rates are one of the lowest.

Anyone wants any dollar bills because I'm selling.

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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.