Yen Gets No Help From Hot GDP;Euro-Dollar at a Standstill?

[DailyFx]

Talking Points
• Japanese Yen: GDP Better but forward data sags
• Euro: French wages rise as Trichet remains hawkish
• Pound: 1.9500 is the pivot of the night
• US Dollar: Housing Starts and U of M on tap


Japanese GDP surprised to the upside expanding at 0.8% versus 0.6% expected as growth from emerging markets offset the downtown in US demand, but the positive impact of the news was short lived, as other more forward looking data points suggested that growth in world’s second largest national economy is decelerating significantly.

Japanese Industrial Production declined -3.4% vs. 3.1% forecast, while consumer confidence declined to 35.4 – the lowest reading in 4 years. Even the GDP report contained a measure of bad news as CAPEX fell precipitously declining -0.9% on a quarter over quarter basis which prompted Japanese Finance Minister Fukushiro Nukaga to express concern about the slowdown in capital spending. In short there is little reason to expect any change in Japanese monetary policy anytime soon given these lackluster results and after probing the 104.00 figure in early European trade USDJPY quickly bounced back as the relatively positive tone in equities brought some carry trade demand back to the market.

Last week in our wrap up commentary we noted that, “next week promises to be one of grinding consolidation (for the EURUSD)”. At that time the pair was trading at 1.5481 and as write this now five days later it is trading at the exact same spot. The currency markets are at standstill with 1.5500 representing the line of balance between the bulls and the bears. Neither camp has enough ammunition to push price away from that level. In EZ the data this week has shown surprising buoyancy in the GDP numbers forestalling any consideration of monetary easing for the time being, while in US the bounce in Retail Sales suggested that the consumer may be wounded but is still alive. Thus prices remain in equilibrium.

The state of US housing sector remains a key point of interest for the FX market, as traders look for any clear signs of bottoming. To that end today’s housing starts data may exert some pressure on the greenback if it shows further deterioration, but unless the surprise is significant, the standstill scenario is likely to hold as we continue to trade either side of 1.5500.

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To discuss this article please contact Boris Schlossberg, Senior Curency Strategist: bschlossberg@fxcm.com