USD/JPY Recovers Ground; Has Aussie Bottomed?

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Market Drivers June 10, 2013
USD/JPY continues to recover in aftermath of NFPs
Chinese Trade slows markedly sending Aussie to fresh lows
Nikkei 4.94% Europe -0.08%
Oil $95/bbl
Gold $1376/oz.

Europe and Asia:
EUR French IP 2.2% vs. 0.3%
EUR Sentix Investor Survey -11.6 vs. -10.0

North America:
CAD Housing Starts 8:15

It’s been a dull and lackluster night for most high beta currencies at the start of the week’s trade, but USD/JPY has managed to gain another 100 points in the aftermath of the better than expected NFPs on Friday and a strong rally in the Nikkei overnight.

The Nikkei rallied nearly 5% as the volatility in the Japanese equity market continued with investors buoyed by stronger than expected US employment data on Friday that saw the creation of 170K new jobs. The Japanese investors were also heartened by the own data as a series of releases including Current Account, bank lending and GDP estimates all suggested that Abenomics is starting to work.

Current account doubled in April from month earlier while bank lending posted its biggest gains in more than three years as confidence in the financial sector is starting to translate into more credit activity. Lastly Q1 GDP was revised upward to 1.0% demonstrating upward momentum in Japan’s economic growth. PM Abe added to the enthusiasm by suggesting that he will seek tax cuts on capex in order to further stimulate investment.

USD/JPY rose to a high of 98.77 in mid morning European dealing as late shorts continued to cover. We noted last week that 95.00 level represented an opportunity for bargain hunting longer term investors and USD/JPY has indeed found key support at that figure. The pair is now likely to consolidate in the 97.00-99.00 region. Any run back through the key 100.00 level may be premature unless US data begins to send out fresh signals of growth.

To that end this Thursday’s US Retails Sales data will be the most important economic report for the pair. The market anticipates an increase to 0.4% but if the number rises closer to 1% then the USD/JPY recovery could prove to be much more substantial.

Meanwhile elsewhere in Asia the weak Chinese trade data which saw both exports and imports miss the mark by a wide margin, had a negative impact on AUD/USD. Chinese exports rose only 1% versus 7.4% eyed while imports declined -0.3% versus 6.6% projection. The data clearly showed that Chinese demand is slowing and that the skews in prior months data due to manipulation of capital flows are not longer helping to boost the numbers.

The news weighed on the Aussie at the start of week’s trade with the pair dropping through the 9400 figure, but it has since recovered rebounding to 9430 in mid morning European dealing. The Aussie remains under tremendous selling pressure with sentiment against the currency still extremely negative, but much like USD/JPY last week, the pair may now be entering bargain hunting territory and could find some support at these levels.

In North America today, the calendar is barren of any data and currencies are likely to take their cues from equities. With both euro and cable holding remaining well bid despite the strong NFP data, a further rally in both may occur as the day proceeds with EUR/USD looking for a retest of 1.3300 while cable eyes a break above 1.5600.

Boris Schlossberg
Managing Director

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