The Reason Why the USD/JPY Broke 105

Thursday’s big story on the foreign-exchange market was the USD/JPY, which broke up 105.  The past five trading days showed that the USD/JPY had been gaining higher quietly. On Thursday night, close to the time of London’s closing, the USD/JPY took out this critical psychological barrier. There are three reasons why there was a strong trade for the dollar throughout the European and U.S. sessions. The first reason is that the U.S. yields, which had its most substantial gains amount in days. There has been very little market-moving of U.S. data during the first half of the week. The investors watched the yields carefully, mainly due to the yields being the leading driver of the dollar for the majority of this month. The U.S. data is the cause for the yields’ rise. For the first time in the last three weeks, there was be a fall for jobless claims, while the increase in pending home sales was more than expected. The decline of -0.1% for durable good orders was moderate, and it was associated entirely with the orders of transportation as the durables ex transportation went from 0.1% last month to 0.2%. In Kansas City, the manufacturing activity stayed stable, which is considered to be good news as the economists had predicted a decline. The most important point is that the investors purchased dollars before the GDP report on Friday. The trade data from this week was unyielding, which raised the hope of an acceleration in GDP growth. Retail sales were weaker in the third quarter in comparison to the second quarter. This weakening poses a grave risk of a downside surprise, thanks to the market’s high forecast of 2.5%. Even though the USD/JPY reached above 105, for the pair to keep its gains, the third quarter needs to have been very strong, however, is it not certain that is has been.

The sterling, with its sharp and assertive intraday reversal, was the second main story of Thursday. The GBP/USD pair pushed forward to a high of 1.2272, following the report of the U.K. GDP. It felt a quick drop after the data was released, but it rebounded to try to reach the highs again with the NY exchange and it then aggressively sold off during the whole North American trading session. There was no clear convincing for the investors of the high GDP numbers; that only show what the initial impact of Brexit. Brexit, which is the vote to leave the European Union, did not have the serious impact on the economy. However, this does not mean that when Article 50 is invoked, they will be able to avoid a downturn. There is still more bad news anticipated for the U.K., and the GBP’s price action indicates that the investors have the same view.

Boris Schlossberg stated: “The U.K GDP prints at 0.5% instead of 0.3% and it can be seen that the preliminary reading suggests that the economy continues to expand at a good and steady pace, even though there is the imminent threat of Brexit. As reported by the ONS, in the third quarter of 2016, there was an increase of 0.8% for the services industries. This increase is in contrast to the output which dropped in the other three key industrial groups. There was a decrease of 1.4% for construction, 0.7% decrease for agriculture and a decline of 0.4% for production, which included a decrease of 1.0% in manufacturing. The figure put out tonight represents only about half of the actual data, which means that the GDP numbers could have a significant change and update later on.

The EUR/USD pair had reached a high of 1.0942 before it had a reversal and a sharp drop of close to 1.0900 at the end of the day. This reversal was driven entirely by the U.S. dollar which was rising, although it is not worth anything that there was an increase in the 10-year German-U.S. yield spread. This yield spread supports a stronger over a weaker EUR/USD. Despite the contrary, the dollar’s great movement put a shadow on the yield spread. After the ringing of the bell, there were also concerns about the earnings of the Deutsche Bank (NYSE: DB). On Thursday, Visco, Nowotny and Mersch, a few of ECB officials spoke. There was concern expressed by Visco with regards to the low inflation and growth. Nowotny and Mersch talked about the monetary policy’s limitations and the low rates side effects. There have not been any clear monetary policy implications as a result of these comments. The question as to whether the EUR/USD pushes for its October 1.0850 lows that are determined by the path of the U.S. rates and the U.S. GDP report on Friday. The CPI report of Germany and the confidence in the Eurozone numbers should only have a restricted impact on the euro.

At the same time, there was a significantly lower trading for the Australian and New Zealand dollars. The Canadian dollar finished the day with little change, even though there was a big increase in the Canadian yields and high oil prices. Oil prices slowly moved closer to {currency}50, during the time that reports came through that Saudi Arabia and other OPEC countries explained to Russia that they were prepared to cut 4% from their maximum oil output. With the renewed hopes of cuts in productions, the data showed on Wednesday that US crude inventories dropped more than was expected. There was a hard hit for the New Zealand dollar by the softer trade numbers. The trade deficit of the country rose from -1.24B to -1.436B, an expected improvement. There was no release of economic reports from Australia, but the industrial profit growth of China slowed materially. The producer prices of Australia will be made public on Thursday evening. There is no data anticipated to come from either Canada or New Zealand.