USD/JPY Rises as Markets Hope for a Deal

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Market Drivers for October 10, 2013
Australian employment mixed as growth slows but rate declines
Dollar strengthens as hope of resolution reigns
Nikkei 1.12% Europe 1.14%
Oil $102/bbl
Gold $1306/oz.

Europe and Asia:
AUD Employment 9.1K vs. 15.2K
AUD Employment 5.6% vs. 5.8%
GBP BoE Rates

North America:
USD Unemployment 800 EST

Risk currencies seesawed in Asian and early European trade today, first selling off against the dollar during Tokyo session and then recovering somewhat by the London open as equities rose by more than 1%. The dollar continued to recover against the yen rising to a high of 97.80 on better risk flows and hopes for a resolution to the nearly two week long stalemate over the US budget.

On the economic front, the European calendar was light but in Australia the employment report produced mixed results. Jobs rebounded from last month losses, but the 9.1K gain was less than the 15K forecast. Full time employment rose by 5.1K while part time jobs gained 4K.

The unemployment rate declined to 5.6% from 5.8% but the reason for the drop was due to a smaller participation rate which fell to 64.9% from 65% the period prior. Overall the picture was a bit confusing for the currency market and the Aussie initially rose and then tumbled hard as profit taking kicked in and stops below the 9400 barrier sent it to a low of 9387 by midday Tokyo dealing.

The pair then recovered to 9430 as tonight’s data left the market with a general assessment that the RBA is likely to remain stationary as long as employment rolls continue to expand albeit at a modest pace. Employment is a lagging indicator and other points in the Australian economy including business and consumer sentiment surveys have turned up indicating that the slowdown Down Under may have troughed.

The Aussie has been a “teflon” currency in the FX market over the past week, showing relative strength against both euro and cable. However the 9500 level continues to provide strong resistance and the pair is unlikely to clear that barrier until labor conditions improve.

Elsewhere, the focus remains on the negotiations in Washington DC as markets continue to hope for a last minute settlement ahead of the debt limit deadline. Mincing no words the OECD Secretary Angel Gurria warned that a failure to reach a deal would send the OECD into a recession putting further pressure on US policymakers to come to an agreement.

There is evidence that both sides may be willing to compromise slightly to extend the debt ceiling limit for a short period in order buy time to work out a more comprehensive agreement down the road. President Obama has invited Republicans to the White House for further negotiations and the markets are clearly hopeful that a financial crisis will be averted.

With US government on partial shutdown the US calendar only carries weekly jobless claims which have remained surprisingly robust amidst all of the political uncertainty. The expectation is for a near match of last week’s 307K reading. If rhetoric from Washington today does indeed appear to be more conciliatory then the dollar should continue to recover against the yen with longs eying the 98.00 barrier as their next target in the recovery of the pair,

Boris Schlossberg
Managing Director

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