Another Wild Ride for USD/JPY

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Market Drivers July 27, 2016

USDJPY spikes to 106.50 on rumors of 50 year bonds
UK GDP better
Nikkei 1.39% Dax 0.84%
Oil $42/bbl
Gold $1328/oz.

Europe and Asia:
AUD AU CPI at 0.5% vs. 0.4% eyed
GBP UK GDP 0.6% vs. 0.5%

North America:
USD Durable Goods 8:30
USD FOMC 14:00

Another wild night of rumors sent USD/JPY soaring in Asian session trade today as the pair spiked by nearly 2 big figures before denials from Japanese officials reversed some of the gains.

A fresh night and a fresh set of rumors about the proposed stimulus due to be revealed this Friday sent USD/JPY on another crazy rollercoaster ride in Asian dealing today as the pair soared to a high of 106.50 before retracing 100 points in a matter of minutes. The leaks suggested that the size of the stimulus could be as large as 27T yen and that the Japanese government was considering the idea of a 50 year bond. Japanese officials quickly denied those rumors and the pair fell back from the highs on disappointment.

Although there has been no official word as to the size and scope of the planned stimulus package the price action in USD/JPY this week has been extremely volatile with the pair moving hundreds of points in matter of minutes as traders respond to every leak and rumor. This suggests that Friday’s BOJ announcement could be especially turbulent if the authorities deviate much from market expectations. At this point any program less than 20T yen in size will be seen as a disappointment and will likely trigger a sharp unwind in the pair.

Elsewhere, the data from UK proved mixed with GDP for Q2 printing at 0.6% vs. 0.5% eyed, but the good news was quickly overshadowed by the weak CBI Reported Sales numbers which dropped to a -14 from 1 forecast. While GDP release reflects the past growth of Q2, the CBI report is far more ominous for the market because it shows that distribute sales expectations have been reduced markedly in the wake of the Brexit vote suggesting that final demand in Q3 will turn negative.

Cable dropped to a low of 1.3075 in the wake of the release but stabilized that level as 1.3000 remains firm support for the unit for the past two weeks.

In North America today USD/JPY will come back into view as market turns its attention to the Fed. The FOMC is not expected to make any policy changes, but the market will be keen to see any change in the language of the communique that could hint at a possible rate hike in September. The US data has been surprisingly resilient and that could lead the Fed to upgrade its assessment of the economy.

If the tone of the FOMC turns hawkish USD/JPY could get another boost, pushing the pair to retest the day’s highs at 106.50 as the prospect of US monetary policy tightening coupled with anticipated BOJ easing could solidify the upward bias in the pair.

Boris Schlossberg
Managing Director

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