Will FOMC Minutes Push USDJPY to 119.00?

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Market Drivers January 04, 2017
Dollar Seesaws
EZ data all better
Nikkei 2.51% Dax -.17%
Oil $52/bbl
Gold $1166/oz.

Europe and Asia:
EUR EZ Composite PMI 54.4 vs. 53.9
GBP UK PMI Construction 54.2 vs. 52.8
EUR EZ CPI 1.1 vs. 1.0

North America:
USD FOMC Minutes 14:00

It’s been a seesaw night for the buck in Asian and early European trading today as the dollar first rose in Tokyo session only to face another sell-off in Europe. USDJPY reached as high as 118.18 but was once again stymied by sellers at those levels as it has failed to take out that figure for more than two weeks.

The markets remain in wait and see mode awaiting US data this week which includes ISM Non-Manufacturing survey on Thursday and NFPs on Friday. Today, traders will also get a look at the FOMC minutes which could shed some light on Fed’s thinking into the New Year. The Fed chair was uncharacteristically hawkish in her December presser and if today’s minutes confirm that the Fed is convinced that US economy has turned the corner than the dollar may get another boost higher in the New York afternoon.

In the meantime the data from Europe was relatively good with final EZ Composite PMI coming in at 54.4 versus 53.9 and CPI readings printing at 1.1 versus 1.0 eyed. The reflation policies of the ECB are clearly having a positive impact as the easing of credit and the lower exchange rate are spurring growth in the region.

In UK the news was mixed with Construction PMI coming in at 54.2 versus 52.8 but Consumer credit rose at its fastest pace since 2005 setting off some alarms that borrowing is once again reaching dangerous levels. Cable was stymied by offers at 1,2300 level and remains relatively weak with EURGBP trading above 8500 for most of the London session. Tomorrow the market will get the UK PMI Services report which could be critical to the near term direction of the pair as it will provide a much better view of the overall UK economy and the impact of much lower currency exchange rates on the service sector.

With nothing else on the calendar until the FOMC minutes release, the US session is likely to be driven by fixed income flows once again. The benchmark 10 year appears to be stuck near the key 2.50% level and its failure to definitively clear that barrier is capping the dollar rally. The market may therefore tread water until the FOMC release and it the minutes confirm the hawkish bias of the Fed USDJPY could finally take out the 119.00 figure as the day proceeds.

Boris Schlossberg
Managing Director

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