US Data Key to USD/JPY 90.00

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Market Drivers for Jan. 24, 2013
Japanese Eco Minister comfortable with 100 USD/JPY
EU PMIs diverge but broad number better
Nikkei -1.28% Europe 0.02%
Oil $95/bbl
Gold $1676/oz.

Europe and Asia:
NZD Credit Card 4.6% vs.4.0%
JPY Trade Balance -0.8T vs. -0.7T
CNY Flash Manufacturing PMI 55.3 vs.55.1
EUR Flash PMI 47.5 vs. 48.6
EUR Flash PMI Svc. 48.3 vs. 48.1
GBP BBA Mortgage Approvals 33.6K vs. 34.1K
GBP CBI 17 vs. 14

North America:
USD Jobless Claims 8:30
USD Flash PMI 9:15

Japanese Deputy Economics minister Yasutoshi Nishimura rocked the FX markets in midday Asia trade when he said that he would not have a problem with USD/JPY reaching the 100.00 level as he dismissed criticism of Japanese officials for rapidly weakening the currency. USD/JPY and yen crosses instantly rocketed higher rising more than 100 points off the lows to hit a high of 89.70.

The latest rhetoric out of Japan suggests that officials there may be ready to move the goalposts after the USD/JPY has now reached the 90.00 target initially called for by Prime Minister Abe. Responding to criticism from Jens Weidmann that Japan was “politicizing” the yen Mr. Nishimura said, “Europe is in no position to criticize Japan. Europe has brought about a prolonged weakness of the euro as a result of their own policies, while Japan has supported Europe through purchases of bonds.”

Despite Japanese authorities efforts to push the yen lower, further progress may be slow given the lack of any immediate policy action from the BOJ. The pair has stalled at the 90.00 level and must clear that barrier with conviction in order to start a new leg higher. For now USD/JPY bulls best hopes lie with the USD part of the equation if US data continues to impress to the upside. Today’s jobless claims and US Flash PMI data could be key to establishing the tone in North American trade and if they beat to the upside then USD/JPY could mount a challenge towards the 90.00 barrier.

Meanwhile in Europe it was a night of FX pop and drop in the currency market as wildly divergent PMI data from France and Germany sent EURUSD on rollercoaster ride first dropping below the 1.3300 level on poor French data only to quickly recover on surprisingly strong German numbers. The French flash PMI readings badly missed their mark printing at 42.9 versus 44.9 eyed for the Manufacturing sector and 43.6 versus 45.6 for the services sector. The German data however saw a strong improvement as Manufacturing rose to 48.8 from 47.1 while services jumped to 55.2 well above the 50 boom/bust line.

The very weak reading out France suggests that President Hollande’s policies of social redistribution are wreaking havoc on the country’s business climate and may result in GDP contraction for Eurozone second largest economy. Still economic activity may recover as Hollande steps back from some of his more radical proposals and broader demand from Europe revives French industry.

The Germans on the other hand continue to fire on all engines with Manufacturing PMI now within a whisker of the 50 expansion line and Europe’s largest economy could act a locomotive for the rest of the region. The overall EZ data actually beat the estimates printing at 47.5 versus 46.6 on the manufacturing front while services rose to 48.3 versus 48.1 eyed.

The broader EZ PMI data shows that the recovery in periphery economies may offset the decline in French production and suggests that the region is starting to generate some positive momentum for growth. The EURUSD recovered after the early flutters and stabilized at 1.3325 in morning European trade. If risk flow remain constructive the pair could make another run the 1.3350 level and try to mount a recovery towards the key 1.3400 resistance level as the day proceeds.

Boris Schlossberg
Managing Director

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