Market Drivers for June 25, 2013
US yields below 2.50% sending USD/JPY through 97.00
PBOC tries to ease market concerns helping risk assets rebound
Nikkei -0.72% Europe 1.40%
Oil $96/bbl
Gold $1286/oz.

Europe and Asia:
JPY Small Business Confidence
GBP BBA Loans for House Purchase 36.1K vs. 33.1K

North America
USD Durable Goods Orders 8:30
USD Consumer Confidence 10:00
USD New Home Sales 10:00

It was a meandering night of trade in the FX market with high beta FX trying to rally early in the session on hope that a PBOC new conference would allay investor fears of a liquidity crunch in the Chinese markets. The conference was not an official PBOC event, but Chinese authorities did address the recent volatility in the markets, stating that they expect the “seasonal” factors to disappear, adding that they are watching liquidity conditions carefully.

The news provided a modicum of support to risk assets with European markets rallying and initially caused a pop in euro, Aussie and Cable, but the gains dissipated as morning dealing progresses and currencies remained in a tight consolidation range ahead of the North American open.

The news out of China did ease the pressure on US rates and 10 year Treasury rates dropped below the key 2.50% mark sending USD/JPY through the 97.00 figure. The pair however found quick support at that level and rebounded to 97.20. Still if US yields continue to decline through North American trade USD/JPY will likely revisit 97.00 later in the day.

The economic calendar was very quiet, but the one data point on the docket continued to show that the UK economy was recovering. UK mortgage applications rose to an impressive 36.1K rate versus 33.1 eyed indicating that the housing market in Britain is continuing to improve. The mortgage data is just the latest example of stronger than anticipated economic releases from UK suggesting that Q2 GDP performance is likely to be considerably better than initially thought. Cable saw little reaction to the news but remained relatively well bid, and could make a run towards the 1.5400 level later in the day if the correction in the dollar rally continues.

The correction in the dollar rally could accelerate during the North American session if the US data disappoints the market. With Durable Goods, New Homes Sales and Case Schiller index all on the calendar investor will have plenty of data to digest in North American trade. The housing data could be of particular interest. Housing has been one of the key drivers of the recovery, spurred on by low interest rates. However, it will be interesting to see if the recent uptick is having any dampening effect on demand.

It may be too early to gauge the impact of the rising rates on the US housing market, but if the data does disappoint the dollar is likely to selloff as US yields will continue to retreat from their highs. Yesterday was the first day in more than a week that the dollar saw broad weakness across the board as investors reconsidered the prospect of Fed tapering. If today’s US economic data misses its mark, that skepticism will only increase sending USD/JPY through 97.00, euro through 1.3150, cable towards 1.5500 and Aussie to 9300 as the day proceeds.

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