Will ECB Buckle if Data Continues to Miss?

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Market Drivers for February 10, 2014
JPY Current Account misses
Italian and French IP data disappoint
Nikkei 1.77% Europe 0.20%
Oil $99/bbl
Gold $1274/oz.

Europe and Asia:
JPY Current Account -0.20T vs. -0.06T
EUR French IP -0.3% vs. -0.1%
EUR IT IP -0.9% vs. 0.0%
EUR Sentix 13.3 vs. 10.3

North America:
CAD Housing Starts 8:15 AM

It’s been a typical quiet Monday start to trade in the currency market with little new economic data for traders to absorb as most of the majors continued their gains against the dollar in the wake of the weaker than expected NFP report last Friday.

USD/JPY drifted lower throughout the night despite the healthy 1.7% rise in the Nikkei with the pair once again testing support at the 102.00 level. On Friday the pair initially plunged on the miss in the NFPs hitting a low of 101.43 before rebounding to 102.50. Today however the dollar saw a slow drift to the downside as data out of Japan disappointed a bit.

Japanese consumer confidence printed at 40.5 versus 42.0 eyed while the Current Account posted yet another deficit of -0.20T versus forecasts of -0.06T indicating that despite a weaker yen the export sector continues to struggle to generate growth.

For now USD/JPY appears to have found a near term bottom at the 101.50 level and may consolidate at around these levels until Janet Yellen’s testimony on Thursday which could provide direction for all the financial markets if the new Fed Chair reveals the near term focus of US monetary policy.

In Europe, the EUR/USD traded higher to take out the stops at the 1.3650 level, but its rally stalled by mid morning London dealing. The news out of the Eurozone remains problematic with today misses in both French and Italian Industrial Production numbers. French IP printed at -0.3% versus -0.1% while Italian data missed markedly coming in at -0.9% versus 0.0% forecast. With the exception of Germany, manufacturing in the in region remains depressed and the higher value of the euro is not helping matters. Today the French Industry minister Montenbourg called on officials to lower the exchange rate, but so far such pleas have fallen in deaf ears at ECB.

Still if the data out of the EZ does not show some clear and steady signs of improvement, Mr. Draghi’s stonewalling could only last so long. Despite pressure from the Germans, the ECB may be forced to act relatively soon in order to stimulate the region’s economy as the discontent in the periphery and the political blowback could finally force the policymakers to act.

Turning to today’s economic calendar, the docket is empty in US and currency markets are likely to take their cue from equities. Unless stock suffer a serious selloff, the 101.50 support in USD/JPY remains secure for now.

Boris Schlossberg
Managing Director

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