There was a quick slide to below 112 on the foreign-exchange market for the USD/JPY. This currency pair has dropped 5 out of the last six trading days with the latest weakening wave that is taking the USD/JPY to the lowest level since November.
There are at least three reasons for the continuous decline in the currency — first and foremost, the investors are nervous regarding the economy and the policies of President Trump. The job reports on Friday failed to impress with the slow wage growth and the rising unemployment rate. Even more important, Trump has been on a campaign to try pressure the other countries to strengthen their currencies, which in essence means that he wants the dollar to weaken. Secondly, the ten-year yields dropped 5bp on Monday, which pushed the dollar even lower and when 112, a significant support level for the USD/JPY broke, the currency pair extended its losses quickly. The problem is that the data has not been strong enough for convincing the market that the Federal Reserve in March will increase interest rates and to offset the push by the President for a lower currency. The stocks are also starting to roll over, and if the slide continues, it adds risk aversion that could turn into extra pressure on USD/JPY. Since no major U.S. economic reports are scheduled for this week, we look for USD/JPY to extend its losses toward 110. The low on November 28 that was near 111.36 could provide some support, but we continue to search for losses over that level.
The euro ended the day lower against the U.S. dollar, while it spent most of the NY trading session gaining higher. Politics, as well as economics and monetary policy, have been a driver. Francois Fillon, one of the former leading candidates in the country’s presidential race, has been entangled in a scandal that allowed Marine Le Pen, the far-right leader of the Front National to rise in the polls. Some of the surveys indicate that she is the lead in becoming France’s next leader, causing some investors to be very nervous. These concerns are very apparent in the bond market with French yields rising high while the German yields dropped — causing the French–German 10-year bond to spread to the widest level it’s been since 2012. The investors are mainly worried about Le Pen’s anti-globalization and immigration views together with her pledge to take France out of NATO and to hold a referendum on the membership to the EU. At the trading session’s start, the euro dropped as the polls show a gaining in momentum but the currency recovered following Fillon announcing he would stay in the race. ECB President Draghi also spoke on Monday, and he spent the majority of the time defending QE. Despite the improvement in data, he does not believe that it is the time to taper stimulus measures and instead he warned that the recent data inflation, even though improving, is considered to be misleading because of the increase being led for the most part by volatile energy prices. In addition to Draghi’s comments, the euro was subject to mixed data from the Eurozone.
In January, the German factory orders increased by 5.2% when only a 0.7% was anticipated. German construction PMI and the retail PMI were lower than the previous months. On Tuesday, the currency will stay in touch with the German industrial production numbers scheduled for release. The Reserve Bank of Australia is planned to meet on Monday night, and while the central bank was expected to keep the interest rates unchanged, investors will be listening carefully for any hints of plans to ease the monetary policy. The previous time the RBA met, it offered an outlook that was benign for the Australian economy. According to the RBA, some slowing is likely at the end of year growth rates, and it also believed that it would pick up again because of further increases in the exporting of resources that are expected as the completed projects come online. The RBA anticipates that the inflation will stay low, but it showed no indication of that rates would drop some more. AUD/USD traders were at first disappointed but shrugged off the rate decision in the North American and European sessions. Since then, there has been improvements and deterioration for the economy in Australia. For example, the consumer spending has been soft, labour activity lacking and slightly weaker inflation. Yet, business activity and confidence are rising as the Chinese economy continues to recover. It is believed, at the end of the day, that the recent strength of the currency will keep the RBA cautious and put a cap on gains in the currency.
|AU Economy – Changes Since Last RBA Meeting|
|Health of the Consumer||Latest||4-Dec||Verdict: AUD Bearish|
|Retail Sales||Dec||-0.10%||0.20%||AUD Bearish|
|Westpac Consumer Confidence||Jan||97.3||101.3||AUD Bearish|
|Labour Market||Verdict: AUD Neutral|
|Unemployment Rate||Dec||5.8%||5.6%||AUD Bearish|
|Employment Change||Dec||13.5K%||9.8K||AUD Bullish|
|Full Time Employment||Dec||9.3K%||41.5K||AUD Bearish|
|Participation Rate||Dec||64.7%||64.4%||AUD Bullish|
|ANZ Job Ads||Jan||4.0%||-1.9%||AUD Bullish|
|Inflation||Verdict: AUD Bullish|
|Consumer Inflation Expectation||Jan||4.3%||3.2%||AUD Bullish|
|CPI QoQ||Q4||0.5%||0.7%||AUD Bearish|
|CPI YoY||Q4||1.5%||1.3%||AUD Bullish|
|Housing Market||Verdict: AUD Neutral|
|Home Loans (MoM||Nov||0.9%||1.6%||AUD Bearish|
|Building Approvals||Dec||-1.2%||-12.6%||AUD Bullish|
|Activity||Verdict: AUD Bullish|
|GDP QoQ||Q4||-0.5%||0.6%||AUD Bearish|
|GDP YoY||Q4||1.8%||3.1%||AUD Bearish|
|Westpac Leading Indicators||Dec||0.44%||0.06%||AUD Bullish|
|Trade Balance||Dec||3511M%||-1227M||AUD Bullish|
|NAB Business Conditions||Dec||11.00||6.00||AUD Bullish|
|NAB Business Confidence||Dec||6.00||4.00||AUD Bullish|
|PMI Manufacturing||Jan||51.2%||54.2%||AUD Bearish|
|PMI Services||Jan||54.5%||51.1%||AUD Bullish|
|Chinese Data||Verdict: AUD Bullish|
|Calxin PMI Composite||Dec||53.5||52.9||AUD Bullish|
|Trade Balance||Dec||40.82B||49.06B||AUD Bearish|
|Industrial Production||Dec||6.00%||6.00%||AUD Neutral|
|Retail Sales||Dec||10.90%||10.30%||AUD Bearish|
|Market Indicators||Verdict: AUD Bullish|
|ASX Index||5653||5400||AUD Bullish|
|10 Year US Bonds||2.76%||2.79%||AUD Bearish|
|Iron Ore Price||646||611||AUD Bullish|
|Shanghai Composite Index||3159||3204||AUD Bearish|
The New Zealand dollar traded higher at the same time that the Canadian dollar traded lower. There wasn’t any particular explanation for the strength of the NZD, but the Canadian dollar was pressured by the oil prices dropping. Canada’s building permits, trade balance, and IVEY PMI reports are due for release on Tuesday and because of the strength of the recent data, the payback in expected in this week’s releases, which means that there could be a further recovery USD/CAD. The Sterling ended the day as unchanged against the U.S. dollar as the pair remained under 1.25.
As there is no data on the docket for the US or UK, the Brexit concern keeps the pound under pressure. The spokesperson for the UK Prime Minister May announced that the government was set on its decision about leaving the EU and that any legislation to keeping the UK in the EU would not be allowed. The losses in the pound were tone downed as the EUR/GBP found offers during the day. The currency cross took a quick glance below 0.86 before finally settling above that level.