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Can USD/JPY Break Above 77.00?

Last updated 10/14/2011 5:40 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Chinese inflation pressures ease
• FX Remains choppy but risk bias positive
• Nikkei off -0.85% Europe up 0.70%
• Oil at $85/bbl
• Gold steady at $1678/oz.

Overnight Eco

• EUR Euro-Zone Consumer Price Index - Core (YoY) (SEP) 1.6% vs. 1.5%
• EUR Euro-Zone Consumer Price Index (MoM) (SEP) 0.8% vs. 0.2%
• EUR Euro-Zone Consumer Price Index (YoY) (SEP) 3.0% vs. 3.0%

Event Risk on Tap

• USD Advance Retail Sales (SEP) expected at 0.4%
• USD Retail Sales Less Autos (SEP) expected at 0.3%
• USD U. of Michigan Confidence (OCT P) expected at 61
• USD Business Inventories (AUG) expected at 0.5%

Price Action

• USD/JPY inches towards 77.00 on better risk flows
• AUD/USD rallies to fresh daily highs as 1.0250 in view
• GBP/USD repelled at 1.5800 on reputed option offers but remains bid
• EUR/USD survives a correction to 1.3750 to rally back to 1.3800

A choppy end of the week session in FX as markets prepared for the G-20 meeting over the weekend with expectation riding high that EZ officials will produce a meaningful plan to address the region’s sovereign debt concerns. The EUR/USD attracted a lot of two way price action as it oscillated around the 1.3800 level for the second day in a row. Having risen nearly 600 points in two weeks the pair I clearly pausing for breath, but the overall market tone remains relatively positive on risk.

Earlier in Asia Chinese CPI data showed some moderation helping to support risk appetite on relief that PBOC will not tighten any further. Chinese CPI printed at 6.1% versus 6.2% expected while the PPI data  was also cooler at 6.5% versus 7.0% eyed. Both readings were below the yearly highs and declined for the second month in a row suggesting that price pressure in the world’s thirds largest economy may have peaked. Looking underneath the headlines, the data showed that food price continued to rise at 13.4% rate while non food items declined slightly to 2.9% from 3.0% the month prior.  

As we wrote earlier, “The rise in food costs remains a troubling problem for Chinese monetary policy makers, but unless the rate of change in price levels begin to accelerate, market analysts expect that the PBOC will not tight monetary policy any further leaving both the Reserve requirement Ratio and  the interest rate on hold. However, so far the improvement in inflation data is moderate and therefore is unlikely to generate any easing steps from the PBOC before the year end.”

Meanwhile in Europe inflation printed at the hottest level in 3 years rising to 3.0% from 2.5% the month prior. Higher transport and housing costs as well as accelerating clothing prices all contributed to the rise prices, although most economists believe that the bump in the CPI is temporary. On the core level the CPI printed at 1.6% slightly higher than 1.5% forecast but still below the ECB’s 2% target. Nevertheless the rise in price levels will make it considerably difficult for European monetary officials to entertain any immediate accommodative moves and therefore rates are likely to remain stationary at least through the year end, even if economic growth shows further deterioration.   

In North America today the key event risk comes in the form of US Retail Sales with markets looking for a jump to 0.5% from 0.0% the month prior. If consumer demand does rebound, the news should prove supportive of risk as it will provide yet move evidence that the dip in activity at the end of the summer  may have just been a stall rather than a clear signal of economic slowdown. USD/JPY has settled back to 77.00 after staging a breakout two days ago, but if the US economic news proves positive, the pair could challenge 77.50 on better outlook into the year end.      

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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.