Market Drivers for Jan. 7 2012
Asia trade dominated by profit taking in yen crosses
Risk FX stabilizes in Europe, Sentix improves
Nikkei -0.83% Europe -0.18%
Oil $92/bbl
Gold $1653/oz.

Europe and Asia:
EUR Eurozone Sentix Investor Confidence -7.0 vs. -13.7
EUR Eurozone Producer Price Index -0.2% vs. -0.1%

North America:
CAD Ivey Purchasing Managers Index 10:00

It been a lackluster night of trade in the FX market marked by some early profit taking in Asia and then steady consolidation in Europe as traders returned to their desks for the first full working week of the year.

The yen crosses initially opened strong in early Asian trade but soon came under selling pressure when Tokyo opened for trade. USD/JPY dipped to test the post NFP lows of 87.65 while EUR/JPY sold off all the way from 115.40 to 114.20 taking EUR/USD down with it as traders started to book profits on their positions.

One reason for the mild selloff in the yen pairs was the more tempered rhetoric from Japanese officials. Finance Minister Aso noted that the government “does not necessarily have to conclude a policy accord with BOJ” adding that, “As long as there’s talk (on monetary policy) at the council meetings, there’s no need to issue a policy accord (with the BOJ)”. The more conciliatory tone suggested that the Abe government may ease its assault on BOJ policy, prompting traders to conclude that Japanese officials may be satisfied with yen levels for now.

Adding to the idea that yen may have reached its targeting weakness was the head of Japanese business lobby Hiromasa Yonekura who stated that the current level of USD/JPY at 88.00 was acceptable.

Risk currencies steadied in Europe with AUDUSD especially strong as the pair moved back to the 1.0500 figure. There were reports over the weekend that Aussie banks would lower mortgage rates thus alleviating the need for RBA to cut the benchmark rates further and that dynamic helped to keep the unit bid for most of the night.

In Europe the Sentix investor survey improved markedly to -7.0 versus -13.7 eyed providing yet another small piece of evidence that economic conditions on the ground appear to be stabilizing for now. The EUR/USD traded to a low of 1.3019 in EUR/JPY profit taking but has since stabilized at the 1.3050 level.

For euro the 1.3000 figure remains key psychological support. The pair held that level in the wake of Friday’s NFPs which proved to a be a bit of a goldilocks affair for the single currency. By coming in just as expected the US labor data showed that growth in North America remains relatively robust, but not so much so that the Fed would be pressured to wind down its QE program anytime soon.

With no US eco data on the docket today, currency markets could continue their quiet consolidative tone, but if equities come under some selling pressure, the yen crosses could follow and euro could once again test the 1.3000 barrier as the day proceeds.

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