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Will USD/JPY Target 75.00?

Last updated 9/15/2011 5:08 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• SNB remains omitted to the peg in EURCHF
• UK Retail Sales in line as riots did not show major negative impact
• Nikkei up 1.76% Europe up 1.87%
• Oil at $88.59/bbl
• Gold at $1817/oz.

Overnight Eco

• CHF Industrial Production (QoQ) (2Q) 3.6% vs. 3.3%
• EUR Euro-Zone Consumer Price Index (YoY) (AUG) n/a
• EUR Euro-Zone Consumer Price Index - Core (YoY) (AUG) n/a
• GBP Retail Sales (MoM) (AUG) -0.2% vs. -0.2%

Event Risk on Tap

• USD Consumer Price Index (YoY) (AUG)
• USD Consumer Price Index Ex Food & Energy (YoY) (AUG)
• USD Consumer Price Index (MoM) (AUG)
• USD Consumer Price Index Ex Food & Energy (MoM) (AUG)
• USD Initial Jobless Claims (SEP 9)
• USD Continuing Claims (SEP 3)
• USD Empire Manufacturing (SEP)
• USD Industrial Production (AUG)
• USD Philadelphia Fed. (SEP)

Price Action

• USD/JPY steady ta 76.70
• AUD/USD rallies back above 1.0250 on risk flows
• GBP/USD takes out 1.5800 after Retail Sales not as bad as feared
• EUR/USD challenges 1.3800 but repelled at the figure

Risk FX was mildly higher in quiet European trade boosted by better than 1.5% gains in equities in Asia and Europe and growing sense of calm vis a vis Greece as European policymakers reassured the markets that Europe’s most troubled creditor member will receive the necessary funds to avoid a possible bankruptcy. The EUR/USD rallied to within 10 points of the 1.3800 figure before seller repelled the move.

The SNB came out with a very aggressive monetary policy statement in support of its 1.2000 EUR/CHF peg noting that it “will enforce the minimum exchange rate of CHF 1.20 per euro set on 6 September with the utmost determination,” adding,”even at a rate of CHF 1.20, the Swiss franc is still high and should continue to weaken over time. If the economic outlook and deflation risks so require, the SNB will take further measures.”

The Swiss central bankers are clearly concerned about the risk of deflation, no doubt exacerbated by the recent CPI and PPI readings both of which were negative.  The Swiss producer and import prices in particular showed very strong deflationary evidence with prices dropping the most in 33 months to decline by -1.2%  versus expectations of -0.3% fall.

Overall, the message from the SNB was unequivocal and clear, “Don’t challenge us.”. For the time being  the market appears to be taking them at their word and the Swissie weakened in the aftermath of the release with EUR/CHF rising nearly 50 points to hit 1.2080 in morning European trade as further short covering kicked in.

In UK the Retail Sales printed in line at -0.2% but cable rallied slightly in the aftermath of the release on relief that the number was not worse. Markets had steeled themselves for a steeply negative print in light of the riots that swept UK in August but the data showed only a small contraction in demand. Nevertheless the news on the consumer front is hardly positive as the spending has now contracted for  two out of the last four months. Consumers continue to be squeezed by higher prices and stagnant wages leading some market analyst to conclude that the BOE will have to restart  its QE program by the end of the year in order to stimulate demand.

In North America the calendar carries a slew of economic data including jobless claims, Empire and Philly manufacturing reports Current account data. Overall there is little evidence to suggest that US economic news will surprise to the upside given the tepid labor market conditions and lackluster consumer demand. USD/JPY has remained stubbornly below the 77.00 level as UST/JGB yield differentials continue to compress and aggressive shorts may try to push the pair below the 76.00 level despite continuous warnings from Japanese PM Noda that they are watching the market carefully.  We believe that Japanese officials are unlikely to intervene in the markets unless the pair breaks the 75.00 figure, but given the weak US economic data the path of least resistance remains to the downside. 

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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.