Asia Sends USD/JPY Soaring

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Market Drivers September 29, 2016

USD/JPY takes off
GE employment declines
Nikkei 1.39% Dax 1.93%
Oil $47/bbl
Gold $1324/oz.

Europe and Asia:
JPY Retail Sales -2.1% vs. -1.7%
EUR GE Unemployment 1K vs. -5K
GBP UK Net Lending 4.5B vs. 4B
GBP Mortgage Approvals 60K vs. 60K

North America:
USD GDP 8:30
USD Weekly jobless 8:30

The news of the OPEC agreement on new quotas reverberated in the currency market tonight, lifting the commodity currencies and sending USD/JPY above the 101.50 level in Asian session trade, but the gains in the commodity dollars did not last, while USD/JPY remained well bid into morning European dealing.

Although the fresh limits on OPEC output were relatively mild, traders in Asia continued to bid crude higher taking oil towards the $47/bbl level and that in turn provided fuel for comm dollars. Aussie took out the .7700 level, loonie dropped below 1.3050 and kiwi managed to squeeze up to .7300. By London morning trade however, profit taking kicked in and all the commodity pairs were trading well off their highs as markets realized that the move by OPEC was more psychological rather than fundamental and was unlikely to provide persistent supply constraints that would lead to a markedly higher price for crude.

USD/JPY on the other hand saw a very strong breakout soaring to a high of 101.75 before finally seeing some profit taking flows. The move in the pair was triggered not only by best risk appetite flows that helped lift Nikkei by more than 1% but also by comments from Kansas Fed Governor Esther George who stated that she did not want to see Fed fall behind the curve when it came to tightening monetary policy, suggesting that a rate hike in December is highly likely.

USD/JPY has survived several attempts at running stops at the 100.00 level and having now repelled the shorts it may continue to squeeze higher. There is little economic information on the docket today with only final GDP readings and weekly jobless claims on the schedule but any positive equity flows could see the pair try to run towards the 102.00 level as the day progresses.

The true direction in the pair may not be known until next week when a slew of US data could either confirm or deny the speculation of a December hike. If the former, the short covering rally that started today could snowball into a much larger move as traders adjust their interest rate expectations.

Boris Schlossberg
Managing Director

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