Market Drivers for July 19, 2013
USD/JPY retreats from highs on Nikkei fall
UK PSNB better but misses forecasts
Nikkei -1.48% Europe -0.58%
Oil $108/bbl
Gold $11286/oz.

Europe and Asia:
JPY Leading Index
JPY All Industry Activity Index
NZD Credit Card Spending
GBP Public Finances
GBP Public Sector Net Borrowing

North America:
CAD CPI 8:30

It’s been a very quiet lackluster night of trade in the currency market as the summer stall is clearly upon us. USD/JPY was the primary mover of the night first rising to weekly highs of 100.87 at the start of Asian session trade only to tumble sharply after Nikkei saw a 2.7% plunge in a matter of minutes.

Traders had little explanation for the sharp selloff in the Nikkei except to note that a large macro fund may have been liquidating its position ahead of this weekend’s Japanese election. USD/JPY eventually rebounded and stabilized around 100.30 in European morning dealing.

Although this weekend the G-20 will meet in Moscow, the primary focus of the FX market remains on Japan where Prime Minister Shinzo Abe’s LDP party is expected to do well in parliamentary elections, but just how well remains an open question. In order to obtain an outright majority the LDP needs to win 72 seats, but the polls put the LDP at 65-66 seat rate which would mean that it would still have to govern in a coalition.

If the LDP is able to capture an outright majority of seats, USD/JPY could gap open higher on Sunday and possibly challenge the near term swing highs at the 101.50 level. If on the other hand the winning margin is more modest, USD/JPY could slip below the 100.00 mark on knee jerk profit taking.

What appears to clear, barring any sharp surprises in the outcome is that Mr. Abe is likely to consolidate his power and maintain course for an accommodative fiscal and monetary policy. That in turn should prove to be USD/JPY bullish unless the JGB market in Japan turns volatile once again.

Elsewhere the majors continued to tread water in very listless London trade with virtually no economic data on the calendar. In North American session the eco calendar remains barren and price action may continue to be slow as trader’s attention is focused more on the heatwave in New York rather than any activity on their screens.

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