Market Drivers for August 12, 2013
Japan GDP misses at 0.6% vs. 0.9%
USD bid on first day of trade
Nikkei -0.70% Europe -0.43%
Oil $106/bbl
Gold $1327/oz.

Europe and Asia:
JPY GDP 0.6% vs. 0.9%
JPY Industrial Production -3.1%
NZD REINZ House Sales -0.5% vs. 0.0%
CHF Retail Sales 2.3% vs. 1.9%

North America:
USD Monthly Budget Statement 14:00

Dollar was slightly bid at the start of the week’s trade as currency markets shrugged off weak GDP numbers in Japan and the euro came under some pressure on news that Greece will need additional bailout funds after the German election in September.

In Japan the GDP report missed its mark by a wide margin printing at 0.6% versus 0.9% eyed as the stimulus from Prime Minister Abe’s reform program failed to produce the full intended effect. Nevertheless the headline number may have been worse than the reality as much of the miss was due to the drawdown of inventories which contributed -1.1% to the overall number.

On the other hand consumption which constitutes more that 60% of the Japanese economy rose at 1.9% rate indicating that spending is slowly starting to pick up as Mr. Abe tries to infuse the economy with more confidence.

USD/JPY initially plunged to a low of 95.91 but recovered all of its losses and was up on the day as the Asian wore on. One of the unintended positive consequences of today’s weak GDP data is the fact that it may now delay the much debated increase in the sales tax as Japanese officials fear the economy may not be strong enough to absorb the shock to consumption.

For now USD/JPY appears to be stabilizing near the 96.00 level and as traders await fresh data from both US and Japan. With most traders on both sides of the Pacific out on holiday, the pair could remain rangebound for the near term until markets get better clairy in September.

Meanwhile in Europe, the EUR/USD drifted lower breaking below the 1.3300 barrier on a report over the weekend that Bundesbank expects further aid packages to Greece after the German election in September. Greek GDP today printed better than expected revised to -4.6% – the lowest rate of decline since 2011, but still markedly contractionary.

The EUR/USD has clearly run into stiff resistance at the 1.3400 level and may now consolidate its recent gains as the calendar remains extremely sparse. In today’s North American trade the docket contains only the monthly US budget statement and trading could continue at its soporific pace until tomorrow’s US Retail Sales report which offer traders a better look at consumer spending at the start of Q3. If the data shows further weakening, the greenback could quickly give up today’s gains as markets begin to doubt the September taper by the Fed.

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