USD/JPY Closes the Gap -But Is There Any Upside Left?

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Market Drivers for March 10, 2014

USD/JPY recovers early jitters from CNY Trade Balance miss to trade flat in Europe

Euro steady in listless trade

Nikkei -1.01% Europe .31%

Oil $101/bbl

Gold $1332/oz.

Europe and Asia:

CNY Trade Balance -23B vs. 13.2B

EUR French IP -0.2% vs. 0.2%

EUR Sentix Confidence

North America:

CAD Housing Starts 8:15 AM

USD/JPY gapped lower at the start of Asian trade in reaction to very weak Chinese Trade data over the week-end, but risk appetite quickly recovered at the start of European session and the pair regained all its losses by morning London dealing.

Chinese Trade data, released after the closed of trade in New York on Friday revealed a massive deficit of -23 Billion dollars versus consensus expectations of a rise of 14 Billion. The huge miss was driven solely by the miss in exports which were down by -18% on a year over year basis. Although the miss was much larger than expected, analysts attributed much of the loss to distortion due to the Lunar New Year as traders tried to export ahead of the holiday.

On the other hand imports were better than expected rising by 10.5% versus 7.5% forecast, allaying fears that demand in China was slowing. Overall according to the General Administration of Customs the Chinese New Year holiday caused sharp fluctuations in foreign trade growth and inflated the trade deficit because Chinese companies typically front-load exports before the holiday.

Still, the news had a negative impact on Chinese equities with the Shanghai index falling below the psychologically key 2000 mark as it closed at 1999.07 and helped weigh on risk flows in Asia with Nikkei closing down by -1%. The news drove USD/JPY to a low of 102.90 but as European equities found their footing the pair traded back to its New York close of 103.30.

With no major economic releases in North America today, trading may continue in its typical lackluster Monday fashion. Although the US NFP data on Friday was better than expected, it remains to be seen whether risk appetite can push USD/JPY back above the 103.50 level as investors remain wary of the slowdown in China and the still combustible situation in Ukraine. If US equities do see a rally, USD/JPY could test the 103.50 level as the day proceeds. However, if profit taking kicks in, USD/JPY could quickly return to the Asian session lows below the 103.00 figure as investors turn risk averse.

Boris Schlossberg
Managing Director

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