USDJPY Pressured in Asia, Looks to Stabilize at 112.50

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Market Drivers November 17, 2017
Mueller probe and NK news rile the dollar
Cable marches higher
Nikkei -0.78% Dax -0.07%
Oil $55/bbl
Gold $1283/oz.

Europe and Asia:
EUR Current Account 37.8B vs. 30.2B

North America:
USD Building Permits/Housing Starts 8:30
CAD CPI 8:30

The dollar came under selling pressure in early Asia today, with risk aversion flows sending USDJPY below the 112.50 level before the pair stabilized in morning London dealing.

The selloff was driven by two separate stories that caused a minor storm in the FX market overnight. First, in Washington DC, it was reported that Robert Mueller was expanding his investigation into Russian collusion with the Trump campaign, subpoenaing dozens of Administration officials. That headline was closely followed by news that North Korea may be making rapid advances in constructing a ballistic missile submarine.

The one-two punch of risk aversion news was too much for the dollar and the buck quickly sold off across the board with cable ultimately popping to 1.3250. But by European morning nerves had settled down pairs traded in very narrow ranges with eco data nonexistent today.

In North American trade, the calendar remains essentially barren with only housing data out of US and Canadian CPI. The loonie has been a persistent loser for the past six weeks as the Bank of Canada did an abrupt about-face and turned resolutely neutral after surprisingly hawkish since the summer. After hiking rates not once but twice, the BOC saw its currency appreciate too much for its own liking and saw CAD data deteriorate at the start of Q3.

Lately, however, the Canadian economy has shown strong signs of rebound. Employment, Building Permits, Ivey PMI have all beaten forecasts while oil popped above the $50/bbl level and has remained there for several weeks.

Canadian inflation data has been tepid at best running at about 1.5% per annum. However, if the CPI proves to be hotter than expected, that could shift BOC towards a more hawkish posture and spark a selloff in USDCAD towards the 1.2500 figure.

Boris Schlossberg
Managing Director

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