Market Drivers July 20, 2016

Kuroda dismisses helicopter money
UK Retail Sales misses
Nikkei 0.77% Dax -0.16%
Oil $45/bbl
Gold $1321/oz.

Europe and Asia:
GBP UK Retail Sales -0.9% vs. -0.5%
GBP UK PSNB 7.3B vs. 9.1B

North America:
EUR ECB Rate 7:00
EUR ECB Presser 8:30
USD Weekly Jobless 8:30
USD Philly Fed 8:30

Bank of Japan Governor Kuroda poured cold water on the idea of helicopter in a radio interview today, sending USD/JPY tumbling more than 100 points in a matter of minutes as traders took profits from the recent rally.

Last week, USD/JPY posted its strongest rally in 17 years as markets started to anticipate another round of monetary stimulus from Bank of Japan. The move peaked today at the 107.45 level on speculation that the package may be as large as 20T yen. But in the back of traders minds there was always hope that the Japanese officials could try something truly unconventional such as depositing funds directly into consumer accounts – colloquially known as “helicopter money”.

With Japan mired in deflation for more than two decades, the country was a prime candidate for such unconventional measures, but today’s comments clearly signal to the market that Japanese officials are quite ready to use these methods of last resort to reflate the economy.

Mr. Kuroda’s comments were intended to check market expectations and perhaps avoid a massive unwind of the USD/JPY longs on any disappointment next week. Japanese policymakers are clearly pleased to have the cross trade firmly above the 100.00 level and today’s rhetoric may have been a pre-emptive move to avoid greater volatility next week.

Still the comments were a disappointment for the market and the selloff in USD/JPY is likely to continue at least to the 105.00 level as traders pare their expectations going forward. The US calendar is light today with only weekly jobless and Philly Fed numbers but if equities sell off they will likely drag USD/JPY below 105.00 as the day proceeds.

Elsewhere the focus will be on the ECB presser. With Mario Draghi forced to address the issues of Brexit, Italian banking sector weakness and the overall slowdown in activity in the region. The consensus view is that Mr. Draghi will not offer any dramatic changes today but may suggest that the ECB could extend or increase its QE program in September. That is likely to drive EUR/USD lower and the pair could test its Brexit lows of 1.0900 should Mr. Draghi signal additional easing ahead.

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