Dollar Shows Signs of Life Agaist the Yen

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Market Drivers for October 21, 2013
Japanese Trade deficit for 15th month in a row – worse than forecast
German inflation but hotter
Nikkei 0.91% Europe -0.11%
Oil $100/bbl
Gold $1314/oz.

Europe and Asia:
JPY Trade Balance -1.09T vs. -1.06T
GE PPI 0.3% vs. 0.1%

North America:
CAD Wholesale Sales 8:30 AM
USD Existing Home Sales 10:00 AM

It’s been an extremely quiet start of trade for the week in the currency market with most major pairs tracing out very narrow 20 point ranges in Asian and early European trade as traders prepare for the delayed September US NFP report due out tomorrow.

With US shutdown saga finally over, the FX markets are trying to “get back to business” as focus begins to shift from political news to economic data. The key question going forward will be just how much did the political impasse cause the US economy at large. There is no doubt that the standoff in DC soured consumer sentiment and certainly reduced some government demand in Q4, but with all the furloughed government employees assured their back pay and the quick resumption of government work, the overall impact may be less than feared.

The fact that the US budget negotiations were resolved well before the key Christmas selling season may also be a positive for Q4 US GDP. In short, after being battered for the better part of the month, the dollar may be due for some relief as bargain hunters begin to probe for a near term bottom.

While all the high beta currencies remain relatively well bid against the buck supported in part by slightly better risk sentiment, the dollar has shown some small gains against the yen with USD/JPY popping through Friday’s highs of 98.15. The only eco report of note was the Japanese Trade Balance which recorded its 15th consecutive monthly deficit and printed at -1.09T yen versus -1.06T yen eyed. Exports were up 11.5% versus 15.4% expected and Imports increased 16.5% versus 19.9% projected.

Comments from BOJ chief Kuroda provided nothing new for the market, but the central bank governor did note that Japanese economy was recovering moderately and that CPI is likely to rise gradually. Mr. Kuroda reaffirmed the BOJ’s commitment to continue easing until the 2% target is reached and remained stable.

One of the key reasons why the dollar continues to perform better against the yen versus the other majors is because the Japanese policymakers remain highly accommodative in their stance trying to match the Fed step for step in their monetary policy. For now monetary authorities in other G10 nations have taken a decidedly nonchalant attitude to recent dollar weakness. However, if US economic data continues to disappoint and pushes the dollar lower, the rhetoric from US trading partners is likely to become more cautionary. For now all eyes will turn to US NFP data tomorrow with markets anticipating a print near the 180K level. If the numbers are close to expectations the greenback could see a relief rebound as the week proceeds.

Boris Schlossberg
Managing Director

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