Can USDJPY Hit Fresh Multi-Month Highs?

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Market Drivers November 23, 2016
AUD Construction Data misses but pair rises
EZ PMI beat
Nikkei closed Dax -0.54%
Oil $48/bbl
Gold $1212/oz.

Europe and Asia:
AUD Construction Work Done -4.9% vs. -1.7%
EUR EZ PMI 54.1 vs. 53.3

North America:
USD Durable Goods 8:30
USD Weekly Jobless 8:30
USD U of M 10:00
USD FOMC Meeting Notes 14:00

With Japanese markets closed for holiday it was a very subdued session in FX tonight with only Aussie showing a mild bid as the pair rose to .7440 in late Asian trade.

The AUD/USD was the only clear bid in FX today despite the fact that Construction Work Done declined by -4.9% versus 1.7% eyed on a quarter over quarter basis. Some analysts believe that such a sharp drop could shave as much as 0.5% off the GDP data, but pair was unfazed by the disappointing news as traders focused on the sharp rebound in the iron ore market which rose 8% in overnight trade.

The sudden surge in demand for iron ore is being attributed to some adjustment in Chinese supply, but it may also be a result of speculation that any infrastructure plans by US President-elect Donald Trump would require a massive increase in steel. In either case the Aussie traded well most of the night and could push towards the 7450 as the day proceeds.

Meanwhile in Europe the release of EZ Flash PMI which beat their mark offered no support for the euro which fell back from yet another test of the 1.0640 level. The pair continues to consolidate above the 1.0600 figure for the fourth day in a row, but remains vulnerable to further selloffs if today’s US data proves to be stronger than expected.

On the docket today ahead of the Thanksgiving holiday, traders will get a look at Durable Goods, Weekly Jobless Claims, U of M and finally the FOMC minutes from the last meeting at the start of the month. Generally the market is looking an improvement from the month prior with consensus calling for Durable Goods to rise to 0.2% from 0.1% the month prior. Any uptick in the results could push USDJPY towards the key 111.50 mark which it has failed to clear for three straight days.

The dollar rally has been on pause all week as markets have been digesting the massive gains from last week, but if today’s data shows that US economic growth is picking up steam, US yields and the buck should respond in kind taking USDJPY to fresh multi-month highs.

Boris Schlossberg
Managing Director

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