Market Drivers for July 26, 2013
USD/JPY hits a two week low at 98.50 Nikkei drops -3%
Japanese CPI rises at fastest pace in 4 years
Nikkei -2.97% Europe 0.40%
Oil $104.70/bbl
Gold $1330/oz.

Europe and Asia:
JPY National CPI 0.4% vs. 0.3%

North America:
USD U. of Michigan Confidence 9:55

The dollar continued to drift lower and was particularly weak against the yen on the final trading day of the week in generally quiet summer trade. The Nikkei dropped by nearly -3% and spurred further selling in USD/JPY which tumbled to a low of 98.50 in late session Asian trade.

The economic calendar was extremely barren today with only the Japanese inflation data on the docket, but that report did show that prices rose at the fastest pace in 4 years suggesting that Abenomics may be starting to gain traction.

Japan’s core measure of inflation – the National CPI ex- fresh food rose to 0.4% versus 0.3% eyed while the Tokyo only figures also showed a rise of 0.3% versus 0.2% prior. Some analysts now predict that Japan’s inflation may rise by 0.5% in July and August as price increases gain momentum.

If price levels do rise, PM Abe would have succeeded in finally breaking the deflationary grip which enveloped Japan for the better part of the past two decades. That dynamic if it were to continue should help drive nominal wages and growth higher in the next several quarters.

The news however did not help USD/JPY which continued to drift lower after it broke below the 99.00 level at the start of the Asian session trade. The greenback has been under severe downward pressure as currency markets rethink the prospect of near term Fed tapers. Yesterday’s article by John Hilsenrath of the Wall Street Journal which suggested that the Fed will continue with its $85 Billion/month buying program and may revise its guidance numbers lower, only served to fuel suspicions that the Fed is unlikely to tighten any time soon.

The dollar therefore remains under pressure and could see further weakness, testing the 1.3300 level in EUR/USD 1.5450 in GBP/USD and possibly 98.00 in USD/JPY as the day progress, especially if the final reading of the U of M consumer survey is revised to the downside.

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