Will US Retail Sales Help USDJPY?

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Market Drivers August 15, 2018
USDTRY eases but risk rebound small
UK Inflation in
Nikkei -0.68% Dax 0.18%
Oil $66/bbl
Gold $1188/oz.
Bitcoin $6400

Europe and Asia:
AUD AU Wage gain 0.6% vs. 0.6%
GBP UK CPI 2.5% vs. 2.5%

North America:
USD Retail Sales 8:30

There was a small rebound in risk FX in London trade after EURUSD and cable plumbed fresh multi-month lows earlier in Asian session with the former hitting a low of 1.1316 while the later dipped below the 1.2700 figure.

The slight rally was led by a recovery in Turkish lira with USDTRY dropping to below the 6.00 level at one point after the Turkish central bank limited the amount of currency swap to 25% of bank’s equity. The previous figure was 50% so this was effectively a 50% cut in available capital for conversions creating a soft form of capital controls.

The positive vibes in risk, however, were quickly undermined by news that the Turkish court rejected the appeal for Pastor’s release. Pastor Brunson is under house arrest in Turkey and is at the center of the diplomatic conflict between US and Turkey that has caused the lira freefall this week. Any solution on the issue would provide quick relief to the beleaguered currency, especially if it was coupled with a lift of US tariffs. It’s hard to say what back channels negotiations are occurring at the moment, but both parties no doubt would like to ease tensions and any solution could lead to a quick short covering rally in the lira that could take USDTRY below 5.00. For now, however, the standoff continues and the pair consolidates its losses weighing on general risk sentiment in majors FX.

On the economic front, UK inflation proved to be a non-event with core CPI coming in at 1.9% – the lowest level in more than a year. The news reaffirms the market view that BOE will remain stationary for the rest of the year. Cable, however, remained heavy all night breaking the 1.2700 figure for the first time since June of last year as it grapples for some sort of base in the wake of growing pressure from no-deal Brexit.

In North America today the focus turns to the calendar with the most important US release of the week due at 12:30 GMT. On the core Retail Sales number, the market is looking for 0.3% vs. 0.4% the month prior but there is potential for upside surprise given Redbook retail sales rose 0.9% over the previous month and wage growth accelerated. A string print on Retail Sales would reinvigorate dollar bulls who have been sidelined by the risk off flows this week. Amidst panicky selling on the EM FX turmoil USDJPY managed to hold support at the 110.50 level and is trading above 111.00 in late morning London session. A beat in Retail Sales would indicate that US consumer continues to support GDP growth and would likely keep the Fed anchored to a 4 rate hike cycle this year. That should help USDJPY to push higher with longs targeting the 112.00 level as the week proceeds is the eco-news proves supportive.

Boris Schlossberg
Managing Director

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