Market Drivers for September 26th, 2013
UK CA cap sends cable tumbling
USD/JPY soars in Asia on talk of pension fund reform but gives up most gains
Nikkei 1.49% Europe 0.22%
Oil $103/bbl
Gold $1337/oz.

Europe and Asia:
GBP UK GDP 0.7% vs. 0.7%
GBP CA -13 vs. -11B

North America:
USD weekly jobless claims 8:30
USD Pending Homes 10:00

Yen and cable were the big movers in the currency markets tonight with yen going on a seesaw ride in the wake of a report by the Japanese pension reform commission while cable was crushed by wider than expected current account deficit.

In Japan Takatoshi Ito, the chairman of the Japanese committee on pension reform issued a report that called on the government to raise the national sales tax and to take better control of the country’s fiscal finances. He also urged the country’s investment managers to diversify away from the JGBs which offer the lowest yield in the industrialized world and have provided very low returns to pension funds.

Although Mr. Ito stressed that investment managers should diversify into property, private equity and commodities in order to increase their returns, he failed to note that they should seek more international investments causing USD/JPY to reverse some of its gains. USD/JPY had spiked up more than 80 points in afternoon session Asian trade on the assumption that Mr. Ito would advise further yen diversification – but his failure to do so unwound a large part of the move as the pair once again failed to hold 99.00 and drifted back to 98.50.

With no meaningful progress on reform in Japan and with US policy makers quagmired in a standoff over budget and debt ceiling matters, USD/JPY has little reason to rally. The pair has been trapped in a narrow 99.50-98.50 range for several days and appears heavy at the moment with shorts looking to break the 98.00 level and test the longer term support near 97.00.

Meanwhile cable was slapped to the downside as well after UK GDP data failed to show any upward revisions. Q2 GDP came in at 0.7% as expected but Q1 readings were reduced by 7.3B GBP and more importantly the the current account data saw a wider than expected gap of -13B vs. -11B eyed. Pound dropped on the news hitting a low of 1.6035 after failing to clear the 1.6100 barrier just ahead of the release.

Although tonight’s data was a disappointment for cable bulls, the GDP and CA news is backward looking and is unlikely to have any sustained impact on the pair. As long as UK economy continues to operate at the present pace, cable should remain well bid and outperform its peers especially given the policy confusion in the G-3 universe.

In North America today the calendar is light with only weekly jobless claims and Pending home sales on the docket. The markets are likely to remain in a relatively tight ranges as traders continue to monitor the events in Washington DC. Meanwhile events unfolding in Italy could also have an impact as reports suggest that Berlusconi’s PDL party may resign en masse from Parliament on October 4th. The euro weakened off that headline as traders become concerned that the country may be thrown into another political crisis. So far the pair has held near the 1.3500 level but if threat turns out be real it could quickly tumble through 1.3450 support.

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