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USD/JPY Regains 100 as Demand for Risk Remains

Last updated 4/9/2009 5:26 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Japanes Machinery orders rebound to postive territory for the first time in five months
• Aso announces 154B in stimulus measures
• Asian equities rally on stimulus news
• OIl rises to $51/bbl
• Gold quite at $883/oz.

Overnight Eco

• JPY Core Machinery Orders much better at 1.4% vs. -6.8% forecast
• AUD MI Inflation Expectations 2.4%
• AUD Employment Change -34.7K vs. -248K eyed
• AUD Unemployment Rate 5.7% vs. 5.4% also worse
• CHF Unemployment Rate 3.3% as expected
• EUR German Final CPI -0.1%
• GBP PPI Input 1.0% but hotter vs. 0.8% forecast
• GBP Trade Balance better at -7.3B vs. -7.6B eyed
• GBP CB Leading Index n/a
• EUR German Industrial Production n/a

Event Risk on Tap

• CAD Employment Change expected at -50.3K
• CAD Unemployment Rate expected at 7.9%
• GBP Rate Statement exoected at 0.50%
• CAD Trade Balance expected at -1.4B
• CAD NHPI expected at -0.5%
• USD Trade Balance expected at -36.6B
• USD Unemployment Claims expected at 659K

Price Action

• USD/JPY back above 100 as risk assumption returns
• AUD/USD weak employment has little effect as unit ralies above 7100 on option reltade activity
• GBP/USD pivots 1.4700 ahead of BoE
• EUR/USD 1.3300 caps for now as Ireland downgraded by Fitch

The last full night of trade ahead of the Easter holiday for capital markets in Europe and North American was fairly quiet with both euro and pound contained to relatively narrow ranges while USD/JPY once again took out the 100 figure to the upside on the back of positive performance in the Nikkei.  The jump in Japanese stocks was fueled by much better data on Japanese machinery orders and larger than expected stimulus package from Prime Minster Aso.

Japanese machinery orders rose 1.4% against expectations of a -6.8% drop.  This was the first time in five months that the machinery orders report, showed a month over month gain suggesting that the vicious contraction in industrial production may be over for now as global demand begins to stabilize.

The rally in risk was also aided by a Bloomberg report that the Aso government will commit up 3% of the GDP on the environment, education, child care, and measures to support the job market corporates. The price tag of approximately $154 Billion was larger than the initial estimates of $99 Billion and was received warmly by Japanese equity traders who rallied the Nikkei for more than 300 points.

Nikkei Business Report

The action in Europe, however, was considerably more subdued as European equities traded either side of even tempering any further gains on the high beta currencies. The EUR/USD was largely capped at the 1.3300 level as news that Fitch downgraded Ireland from its AAA rating continued to weigh on the unit. Still, the latest geo-political news is having a relatively minor impact on trade as  the pair continues to be driven primarily by risk appetite  flows. To that end today’s DJIA performance into the holiday week-end will likely determine the direction of the unit for the rest of the day.

Pound on the other hand was considerably weaker following PPI and Trade Balance data although the former was hotter than forecast and the later was better expected.  Traders continue to be jittery ahead of the 11:00 GMT BoE rate decision  despite the fact that no change in rate policy is expected. The key point of interest for the FX market will be the BoE position on any additional quantitative easing measures it may undertake. If the MPC suggests that conditions in UK economy show no stabilization and further easing will be necessary, cable is sure to come under pressure. However, given the steady albeit small signs of improvement in UK fundamentals over the past two weeks, we expect the tone of the BoE statement – if they choose to make one – to be relatively neutral.

Turning to North America, the event risk calendar is once again unimpressive with only the weekly jobless claims and Trade Balance data on the docket.  Of the two the weekly jobless figures could prove to me more important especially if they print  above the psychologically key -700K barrier. As we’ve noted before in contrast to the monthly employment figures the weekly jobless claims numbers serve as a leading indicator of a rebound in economic activity since companies will first stop firing before they begin hiring workers. If  the jobless claims report shows further signs of improvement equities could react positively and pull the high beta currencies higher on risk appetite flows as trading comes to a close in the West.

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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.