Why USD/JPY Could Drop to 100.00

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Market Drivers for June 27 2014

UK GDP in line but business investment rises

EZ GE CPI rebounds to positive territory

Nikkei -1.39% Europe 0.34%

Oil $105/bbl

Gold $1318/oz.

Europe and Asia:

EUR French Consumer 1.0% vs. 0.3%

GBP UK GDP 0.8% vs. 0.8%

GBP UK CA -18.5 vs. -17.1b

North America:


USD U of M 8:30 AM

The dollar continued to weaken on the last trading day of the week particularly against the yen and the antipodean high yielders as US yields floundered around the 2.50% level.

In Japan the unemployment rate hit a 16 year low declining to 3.5% and the Job to Applicant ratio remained steady at 1.08 but the positive news on the labor front was offset by very weak household spending figures which declined by a whopping -8.0% versus -2.3% eyed.

The news suggests that the most recent national sales tax hike may be having a more significant dampening impact that originally thought and could prove to be a serious challenge to growth in H2 of this year. The Nikkei dropped by more than -1% and dragged USD/JPY lower on risk aversion flow with the pair tumbling to a low of 101.30.

USD/JPY is now approaching the key support level of 100.50 which has proven to be a major bottom four times this year, but the pair may now be in danger of crashing through that area, especially if US data next week proves disappointing. The recent lackluster number out of the US have depressed US yields weighing on the greenback.

The fixed income markets are convinced that the Fed will do absolutely nothing for a protracted period of time given the tepid US fundamentals. Indeed job growth alone will not be enough to nudge the market higher as US rates are unlikely to rise until US wages show some consistent growth. In the meantime, any disappointment on the NFP front could drive USD/JPY towards a test of 100.00.

Elsewhere the high yielders continued to attract investment flows with kiwi making another run for yearly highs at the 8800 level while Aussie probed 9450. Both pairs ran into profit taking at those levels and traded 20 -30 points off their highs in morning European dealing. Nevertheless the need for yield clearly continues in the forex market and the antipodeans can go higher if US 10 year bonds drop below the 2.50% level.

With no major events on the calendar for the rest of the day, trading should remain subdued into the summer weekend and unless the fixed income markets make significant moves the greenback is likely to stay within the current ranges for the rest of the day.

Boris Schlossberg
Managing Director

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