Could PPI Push USDJPY to 112.00?

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Market Drivers September 12, 2018
GBPUSD above 1.3000 but 1,3050 caps
EU slighhtly lowers growth projections
Nikkei -0.27% Dax -0.22%
Oil $69/bbl
Gold $1197/oz.
Bitcoin $6200

Europe and Asia:
No Data

North America:
USD PPI 8:30

It’s been a very choppy quiet night of trade in FX with majors aimlessly trapped in tight 20 point ranges for most of early European trade.

With no eco data on the docket, FX was subject to headline risk with EURUSD popping up above 1.1600 only to fall back below the figure on news that EU slightly lowered growth projections for next year. It will be interesting to see if ECB President Draghi addresses this issue at tomorrow’s presser and if so it could take the EURUSD towards another test of the 1.1500 level.

The only other action of the night was in cable as the never-ending drama of Brexit continued to seesaw the pair with cable popping towards 1.3050 on some hopeful headlines but then failing to hold that level as the morning unfolded. EU President Juncker was uncharacteristically gracious in his discussion of the issue, stating that EU respects the UK right to leave the union, but that it will not compromise on the Irish border stance. The Irish border issue appears to be the principal barrier to negotiations now with the consensus view that if the political disagreement can be ironed out UK will wind up with Canada-type of deal. This is a far cry from the Chequers proposal that PM May wanted, but maybe the best that UK can get. Such a deal will keep the UK market open to German exports but will leave UK without any EU financial funds, essentially to fend for itself. Cable may rally in relief on such news, but its doubtful the rally will be long-lasting if UK eco data begins to deteriorate.

Meanwhile in the US today the market will get a look at the PPI data with consensus looking for a rise to 0.2% which would only stiffen the resolve of the Fed to hike 4 times this year. Core PPI has been running at 0.2% month over month gains for past 6 out of 7 months indicating that price pressures in the US economy are persistent. Trade war frictions only add to that dynamic and could begin to spill over into CPI figures as well. USDJPY remained quiet at 111.45 for most of the night, but if inflation readings prove hotter than expected the pair could push towards 112.00 the day progresses.

Boris Schlossberg
Managing Director

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