USDJPY Grinds Higher But 114.00 Caps

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Market Drivers February 13, 2017
Japanese GDP misses on headline
USDJPY takes out 114.00
Nikkei 0.41% Dax 0.49%
Oil $53/bbl
Gold $1231/oz.

Europe and Asia:
JPY GDP 0.2% vs. 0.3%

North America:
No data

USDJPY bolted out of the gate at the start of week’s trading, gapping higher at the Asian open as it rose to take out the 114.00 figure my mid morning Tokyo trade only to retrace part of its gains in late Asian and early European trade.

The pair was boosted by higher US yields which rose to 2.42% on the 10 year and by relief that President Trump did not engage in any jawboning of the currency over his weekend meeting with Prime Minister Abe.

On the economic front Japanese Q4 GDP missed its mark printing at 0.2% versus 0.3% eyed but nevertheless managed the fourth consecutive quarter of expansion. Analysts, however, noted that all growth was export driven with exports rising 2.6%, business investment increasing 0.9% while household spending remained flat. With Japanese domestic still very weak there is absolutely no reason for BOJ to taper is QE program and the central bank is likely to maintain it easing policy for the foreseeable future.

Although USD/JPY continues to get a boost from BOJ’s easing stance, the near direction of the pair will be driven by the actions of the Fed. To that end, tomorrow’s testimony by Fed Chair Janet Yellen in front of Senate banking committee will be the marquee event of the week as market tries to gauge the Fed’s appetite for a March rate hike.

The conventional wisdom is that Fed will likely hold off until June, adhering to its gradualist posture as it allows the US economy to continue to expand unencumbered. However, if Ms. Yellen provides a more positive assessment than the market anticipates, USDJPY could quickly verticalize towards the 115.00 figure as pro-dollar sentiment will turn considerably more bullish.

With no eco data on the calendar today, trading could remain lackluster through the North American session with FX taking its cues from fixed income and equities. For now, the 114.00 continues to cap any upside in the pair as FX markets are content to tread water ahead of Yellen testimony.

Boris Schlossberg
Managing Director

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