USDJPY Feels Friday’s Pain

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Market Drivers April 17, 2017
USDJPY continues to slide
Chinese GDP beats
Nikkei 0.11% Dax 0.45%
Oil $52/bbl
Gold $1291/oz.

Europe and Asia:
CNY GDP 6.9% vs. 6.8%
CNY IP 7.6% vs. 6.2%

North America:
USD Empire Manufcaturing 8:30
USD NAHB Housing 10:00

Easter holiday continued with many parts of Asia and all of European capital markets still closed, creating for a quiet start to the week in FX. USDJPY, however, continued to feel the pain of Friday’s disappointing US Retail Sales and CPI data and slid lower from the open finding support just ahead of the 108.00 figure and rebounding slightly in the wake of better than expected Chinese GDP data.

Chinese GDP report was the only data point on the docket. The data came in slightly better than forecast at 6.9% versus 6.8% eyed. In addition, Industrial Production was especially impressive coming in at 7.2% versus 6.2%. The news augurs well for growth in Q2 of this year and suggests that the Chinese economy may be more resilient than thought.

The news provided a mild lift to USDJPY off its lows and kept AUDUSD afloat near the .7600 figure but given the holiday-thinned markets the reaction was very tepid.

Overall the FX market continues to react to the very poor US data numbers on Friday. As our colleague Kathy Lien noted,”Despite stronger wages and higher consumer confidence, retail sales dropped for the second month in a row by -0.2%. Spending in February was revised down to -0.3% from 0.1%. Excluding autos and gas, spending rose 0.1%, less than the market’s 0.3% forecast. Consumer prices also fell for the first time in more than a year by -0.3%. This pushed the year over year rate down to 2.4% from 2.7%. Today’s reports pretty much guarantee that the next move will be in September and not June as the weakness of spending will weigh on first quarter GDP growth.”

Although Fed funds futures continue to price in a 50% chance of a hike in June, those odds are likely to drift lower, especially if US labor data for May shows no improvement. The data from Friday demonstrates without a doubt that organic growth in the US economy has stalled and that only some form of fiscal stimulus will jump start growth in H2 of this year. To that end, the markets will continue to watch the developments in Washington DC with much greater focus than the rhetoric from the Fed. If there is little progress in DC on tax reform or infrastructure spending, US growth is likely to remain near the 2% mark capping any rate hike intentions from the Fed.

Having broken below the key 110.00 support USDJPY now finds itself near the 108.00 figure with little reason to rally, save for some short covering flows. With just a smattering of second tier housing reports on the data calendar this week, the pair could probe the 107.00 level as the week progresses.

Boris Schlossberg
Managing Director

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