Will USDJPY Fill the Gap?

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Market Drivers May 14, 2019
Risk on back on
UK Labor data in line
Nikkei -0.59% Dax -0.29%
Oil $60/bbl
Gold $1297/oz.

Europe and Asia:
GBP UK Wages 3.2% vs. 3.4%
EUR ZEW -2.1 vs. 5.1

North America:
No data

After a violent sell-off yesterday, FX markets were much steadier today buoyed by recovery in equity markets which improved risk sentiment and pushed USDJPY back towards the 110,00 level.

There was little fresh news in overnight trade, but after a few salvos on trade and tariffs from both US and China over the past few days the rhetoric cooled off a bit, with President Trump continuing to stress that a trade deal was still possible. That was enough to spur some short covering in equities with futures indicating US stocks higher by 0.70% which in turn helped push risk pairs higher.

Neither the euro nor cable received much support from eco data overnight with UK wage growth coming in at 3,2% versus 3,4% eyed. Still, this is one of the better readings in OECD and suggests that if UK can get past Brexit BoE is likely to hike rates. Cable sold off prior to the data, but held firm at the 1.2900 figure and traded slightly higher post news. All eyes are on the Labor-Tory negotiations which have yet to produce any significant progress.

In Europe, the ZEW survey surprised to the downside printing at -2.1 vs. 5.1 eyed but markets shrugged off the news as Current Situation reading improved. The EURUSD remains contained in a narrow range still capped by the 1.1265 level but if it can break through on risk on flows the longs will likely lift it towards 1.1300 on any improvement in risk sentiment.

With no data on the docket today, the focus will be on US equities. If they can hold and extend their early lead USDJPY is likely to push higher to fill the opening gap from yesterday. So far it has stalled at the 109.75 level, but if equities rally it will likely push to 110.00 filling the gap left yesterday by the weekend news on US tariffs.

Boris Schlossberg
Managing Director

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