Market Drivers for June 11, 2013
Aussie crashes to fresh yearly lows
BOJ offers nothing new disappointing investors
Nikkei – 1.45% Europe -0.91%
Oil $95.50/bbl
Gold $1371/oz.

Europe and Asia:
AUD Home Loans 0.8% vs. 2.1%
AUD NAB Business Confidence -1 vs. -1
JPY BOJ Rate Decision no change
JPY BOJ Monetary Policy Statement
JPY BOJ Governor Kuroda Press Conference
JPY Machine Tool Orders
GBP RICS House Price Balance 5% vs. 3%
GBP Industrial Production 0.1% vs. 0.4%
GBP Manufacturing Production -0.2% vs. 0.0%

North America:
USD Wholesale Inventories 10:00

Both USD/JPY and AUD/USD were hammered in Asian and early European session trade today, with yen strengthening on lack of any new initiatives from BOJ, while Aussie liquidation continued unabated. In Japan the BOJ monthly press conference disappointed investors as Governor Kuroda offered no new initiatives and essentially reaffirmed the same policy stance noting that the central bank will make adjustments as appropriate.

Mr. Kuroda stated that policy makers are watching long term yields and they will discuss longer term policy operations when needed, clearly signaling that the central bank will take no additional QE actions for now.

This gradualist tone gravely disappointed the market with USD/JPY taking swan dive as it tumbled to a low of 96.46 before finally rebounding to 97.00. The volatility in USD/JPY has been remarkable and is a function of massive speculative interest in the pair. In today’s trade USD/JPY has already registered an range of 250 pips.

Yet despite heart stopping moves caused by cascading stops runs on both the upside and the downside, the pair remains within a broad 99.00-95.00 channel and is likely to consolidate in that range for the time being. With no additional policy move actions forthcoming from Japan, any upside in the pair is likely to be driven by US economic data of which this Thursday’s Retail Sales report will be the most watched release.

Meanwhile the troubles Down Under continued without respite as AUD/USD sunk to fresh multi month lows breaking below the .9350 level. A large part of the weakness was driven by EUR/AUD flows with that cross hitting fresh highs above 1.4200 mark. There has been massive outflows of European money from Aussie based carry trades and the price action in the pair has reflected that dynamic.

However as we’ve noted for several days, the Aussie is now grossly oversold and some respite may be due. The EUR/AUD pair could correct off the 1.4100 highs especially if investors become alarmed at the current case in front of the German Constitutional court regarding the legitimacy of the OMT program. Although few market participants expect any type of radical ruling, the pre-hearing comments from the German justices suggest a high degree of skepticism towards the program. EU periphery yields have already moved higher, demonstrating a sense of anxiety about the legal proceedings in Germany.

For the time being the EUR/USD remains remarkably robust and if it can take out the 1.3310 level in North American trade it may rise to 1.3350 on momentum alone, but if the newsflashes out of Germany prove troubling, the pair could quickly sell off towards the 1.3200 figure.

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