Risk-off Friday! Aussie Collapse Continues Yen Soars

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Market Drivers for January 24, 2014
AUD/USD breaks below 8700 as risk off tone rises
USD/JPY gives up 103.00 as EU shares sink
Nikkei -1.94% Europe -0.49%
Oil $97/bbl
Gold $1259/oz.

Europe and Asia:
UK BBA Approvals 46.5K vs. 47.2k

North America:

A hint of panic is starting to permeate the forex markets on the final trading day of the week, as the brewing financial crisis in Argentina has created a nervous risk off session that saw USD/JPY plunge nearly 100 points off its highs while AUD/USD cratered to fresh yearly lows.

On a day absent of any meaningful economic news, the currency markets focused of the growing concerns over emerging markets in the wake of yesterday’s plunge the Argentinian peso which was devalued by more -17%. Although Argentina economic problems are unique, investors are starting to panic about other vulnerable spots like South Africa and Turkey.

The unease over the risk in EM has spilled over into the majors with yen strengthening markedly as Nikkei futures plunged by -230 ticks while European stocks led by near 2% decline in the IBEX also fell sharply. Over the past 24 hours USD/JPY has now broken below the 104.00 and the 103.00 figures with 102.50 support barely holding.

The pair has seen a lot of technical damage this week as sentiment clearly shifted. The lackluster US economic data, the decline in US yields and now the new fears over EM stability have contributed to the downfall in the pair and the decline is unlikely to stop unless US data begins to improve reviving expectations of stable global growth this year.

The Aussie has also become a proxy for emerging market risk as the pair tumbled to fresh yearly lows of 8665 in morning London trade. The pair has been very badly beaten up this week on concerns over the slowdown in China and although the latest CPI data suggests that inflation pressures are accelerating the RBA may have no choice but to ease further if economic conditions Down Under deteriorate further.

Meanwhile in North America the calendar is barren as well, but focus may turn to the Canadian CPI data. The market is looking at a steep decline of -0.4% from -0.1% the month prior, but if the data prints hotter it may give loonie a boost. The little dollar has already strengthened in overnight trade dropping to 1.1055 and could retrace towards 1.1000 if the inflation numbers surprise to the upside. The news could also help to push AUD/CAD towarsd the 9500 level as the day proceeds.

Boris Schlossberg
Managing Director

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