Market Drivers June 16, 2016

USD/JPY drops 2 big figures on BOJ
AU Employment mixed
Nikkei -1.53% Dax -0.79%
Oil $47/bbl
Gold $1310/oz.

Europe and Asia:
AUD Employment 17.9K vs. 15K
BOJ Stays pat
GBP Retail Sales 0.9% vs. 0.2%
EUR CPI 0.4% vs. 0.3%

North America:
GBP Rate Hike, minutes 7:00
USD Weekly jobless claims 8:30
USD CPI 8:30

USD/JPY turned radioactive in Asian session trade today dropping nearly 2 big figures after BOJ left its QE policy unchanged and Governor Kuroda expressed little immediate concern about the currency’s strength.

BOJ left its QE policy at 80 Trillion yen and maintained the negative rate stance with votes of 8-1 and 7-2 respectively. In assessing the state of the economy Mr. Kuroda struck a mildly positive tone noting that Japan is continuing to recover moderately on trend. The central bank however did note that inflation will remain below 0% for the time being.

Although most market participants did not expect any additional stimulus from BOJ, the announcement nevertheless triggered a massive selloff on disappointment. Coming on the heels of yesterday’s generally dovish Fed statement the pair became a prime target for shorts, especially because its was trading so close to the yearly low of 105.50.

With both the 105.00 and 104.00 broken USD/JPY has sustained massive technical damage and could remain volatile until the Brexit vote at the very least. If Brexit does happen the resulting chaos in capital markets could easily push the pair below parity as risk aversion flows explode. For now however, it has found support underneath the 104.00 figure and could consolidate there for the next few days.

Elsewhere in Australia the labor data came in better than expected at 17.9K vs. 15K but the headline readings were offset by the sharp downward revisions in the month prior and the decline in labor force participation to 64.8% from 64.9% eyed. Aussie drifted off the highs giving up the 7400 figure as AUD/JPY sales weighed on the pair as well.

In UK Retail sales popped 0.9% versus 0.2% forecast printing yet another upside surprise this week. As we noted yesterday, “The risk of UK leaving the EU still remains significant and the latest swirl of polls suggests that vote is too close to call, but should UK economy survive the Brexit vote, the underlying fundamentals appear to have been relatively unscathed by the political trauma and cable could pop substantially on a Remain win.”

In North American trade the calendar carries US CPI and weekly jobs data neither of which will be market moving and the focus will be on whether US traders will want to test USD/JPY lows once again. Therefore FX markets will likely take their cues from equities as the day proceeds.

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