USD/JPY’s Fate Rests on US GDP

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Market Drivers January 30, 2015

AUD PPI at 0.1% vs. 0.3% but Aussie holds lows as RBA cut debated
Euro stages rally
Nikkei 0.39% Europe -.69%
Oil $45/bbl
Gold $1262/oz.

Europe and Asia:
AUD PPI 0.1% vs. 0.3%
EZ Core CPI -0.6% vs. -0.5%
EZ Unemployment rate 11.4% vs. 11.5%

North America:
USD GDP 8:30

CAD GDP 8:30

It’s been a choppy night of trade in the currency market with most of the majors bouncing in 50 pip ranges with little directional guidance in Asian and early European trade. After yesterday’s drubbing the commodity dollars stabilized by any attempts to rally were capped at key levels.

The Aussie remains the primary focus of the market as debate rages as to whether the RBA will cut rates at the upcoming meeting or not. The majority of economists polled by Bloomberg believe that the RBA will stand pat. although some bank analysts believe that the central bank will issue some forward guidance stating that rate cuts are coming.

With Aussie having already fallen more than 200 points in the past 48 hours most the rate cut expectations are priced in. Nevertheless if RBA does act next week and furthermore if it states that more rate cuts are coming then the AUD/USD could easily drop below the .7500 level over the next few weeks as capital will flee the pair on lower yield expectations. Certainly the RBA has scope to ease given the tepid rate of inflation. Last night’s PPI data came in at mere 0.1% versus 0.3% eyed.

Elsewhere the data inflation data out of Europe was also tame with CPI coming in at -0.6% versus -0.5% eyed as deflation continues to grip the region.The EUR/USD however, shrugged off the news and moved steadily higher throughout European morning as the pair continues to stabilize at these levels. With most of the negative news priced it, the EUR/USD remains open to a short covering rally as bulls bet on the fact that lower oil prices and exchange rates will jump start demand in the region.

In North American Trade today the focus will be on US GDP data with market looking at 3.0% versus 5.0% the period prior. Any number above 3.0% will be considered very respectable given the woeful performance of other G-10 members and could give USD/JPY a boost as the day proceeds. The pair has been capped by the 119.00 figure for the past two weeks and if the GDP numbers confirm that US growth remains on pace the pair could finally catch a bid. On the other hand a weaker than expected print could trigger a cascade of selling as expectations of any moves to normalize policy by the Fed will diminish considerably. For now the consensus view is that the Fed will commence rate hikes in September of this year, but if GDP data shows a serious slowdown in growth the forecast for rate hike may be pushed off to 2016.

Boris Schlossberg
Managing Director

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