Market Drivers June 3, 2013
Nikkei dive pushes USD/JPY to within a few pips of 100.00
Aussie rebounds on better Chinese PMI
Nikkei -3.72% Europe -1.16%
Oil $91.87/bbl
Gold $ 1399/oz.

Europe and Asia:
AUD AiG PMI 43.8 vs. 36.7
AUD Retail Sales 0.2% vs. 0.3%
JPY Capital Spending -3.9% vs. -5.5%
CHF SVME PMI 52.2 vs. 50.9
EUR Euro-Zone PMI Manufacturing 48.3 vs. 47.8
GBP PMI Manufacturing 51.3 vs. 50.3

North America:
USD Construction Spending 10:00
USD ISM Manufacturing 10:00
USD ISM Prices Paid 10:00

More liquidation on the Nikkei market has continued to put downside pressure on USD/JPY during the first trading day of the week, with the pair inching towards the key 100.00 barrier throughout late Asian and early European session. The Nikkei saw another sharp selloff today dropping -3.72% as the correction in Japanese stocks continued.

USD/JPY held up well most of the night, but as European trading came on line the selling pressure in the pair resumed and it came within a few pips of tripping the key 100.00 barrier. We have been noting for the past several days that the pair – despite a torrent of supportive fundamental data from both US and Japan has refused to rally further indicating that it may have set a near term top at 103.50 and may now enter a period correction and consolidation.

For now the 100.00 barrier remains untouched as importer bids have propped up the pair, but equity flows remain negative in North American session the temptation to run the 100.00 level will no doubt escalate, especially once we clear the 10 AM NY option cut. Therefore, there is likely to be a lot of good two way action in USD/JPY as North American markets open for trade.

Meanwhile elsewhere, better economic data helped to boost high beta FX with euro, cable and Aussie all rising against the buck. In Australia the markets ignored the weaker Retail Sales and ANZ job adverts data and instead focused on the China’s PMI data which came out on Saturday and showed a rise to 50.8 from 49.9 expected. As we’ve been saying for the past week, the Aussie has been so grossly oversold that some rebound was due and clearly the .9500 level has found some longer term bargain hunters and remains strong support for the pair for the time being. If the short covering can extend through the .9700 level it could trigger a stronger rally with the pai possibly rising towards 9800 as the week proceeds.

In UK the PMI Manufacturing data suprised to the upside rising to 51.3 from 50.3 eyed. This was the second consecutive month of 50-plus readings indicating that the UK Manufacturing sector is starting to recover. The new orders index rose to 53.7 – a 26 month high. The news proved positive for cable, lifting the pair to a high of 1.5289 before easing a bit towards 1.5260.

In Europe the latest PMI data also showed an improvement. Although the headline readings remained below the 50 boom/bust line, they nevertheless rose to 48.3 from 47.8 with some of the periphery economies registering multi month highs. That encouraged investors and EUR/USD rose above the 1.3000 ;level trading at 1.3025 in moring European dealing.

Whether the rally in high beta can continue for the rest of the day will depend on North American flows. The calendar carries the ISM Manufacturing report with markets looking for little change from the month prior. Friday’s strong Chicago PMI reading suggests that the number could surprise to the upside to the upside which could provide the greenback with some lift accross the board. But if the data misses, and worse if it dips below the 50 line, the chances of USD/JPY dropping through 100.00 become extremely likely.

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