Market Drivers for May 23 2013
Nikkei plunges by 7% taking USD/JPY to 101.00
EZ PMi data stabilizes
Nikkei -7.26% Europe -2.56%
Oil $92.80/bbl
Gold $1377/oz.

Europe and Asia:
AUD Consumer Inflation Expectations 2.3% vs. 2.2%
JPY Japan Buying Foreign Bonds -804 vs. 185
JPY BOJ Monthly Economic Report for May
EUR German PMI Manufacturing 49 vs. 48.5
EUR German PMI Services 49.8 vs. 50
EUR Euro-Zone PMI Manufacturing 47.8 vs. 47
EUR Euro-Zone PMI Services 47.5 vs 47.2
GBP GDP 0.3% vs. 0.3%
GBP Total Business Investment

North America:
USD Initial Jobless Claims 8:30
USD Markit US PMI Prelim 8:58
USD House Price Index 9:00
USD New Home Sales 10:00

A more than 7% plunge in the Nikkei triggered a massive selloff in USD/JPY with the pair tumbling more than 250 points off the highs of the session before finally finding some support near the 101.00 level. The Nikkei fell very hard as profit taking and investor concerns over the volatility in the JGB market sent shares tumbling creating a massive risk off environment that reverberated throughout the night.

The JGB market has been the achilles heel of the BOJ plan to increase monetary easing with rates become much more volatile since the start of the massive liquidity program. This new turbulence has spooked investors and resulted in the worst selloff in the Nikkei in several years. The plunge was precipitated by small investors whose participation has steadily increased over the past several months as Nikkei climbed to fresh multi-year lows.

The drop in USD/JPY was also driven by weaker than expected Chinese manufacturing data which dropped below the key 50 boom/bust line suggesting that the sector is contracting for the first time this year. The pair has been grossly overbought and was due for a correction and despite the market’s assessment of yesterday’s Fed Chairman’s testimony about QE we continue to believe that the prospect of tapering is slim to none for the foreseeable future as US economy shows signs of slowing.

Elsewhere the EUR/USD got a boost from bit better flash PMI data with the EZ Composite coming in at 47.7 versus 47.2. The index remains deep in contractionary territory, but the sense of stability provided hope that worst may be over for the region and growth may begin to improve into the summer months. The EUR/USD bounced back to 1.2900 on overall dollar weakness and could target the 1.2950 level later in the day if the profit taking rally continues.

In North America today the weekly jobless claims and the housing data will be the key eco data on the docket with traders keenly watching the labor report which has been a very good predictor of overall growth. If today’s jobless claims continue to rise reversing the long term trend, the correction in the dollar rally is likely to intensify with USD/JPY possibly testing support underneath the 101.00 as the session proceeds.

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