Japanese Yen Breaks Momentum, Eyes Significant Support through US Open

Talking Points
• Japanese Yen Declines for First Day in Nearly Two Weeks
• High-Yielding Australian Dollar Bounces on Positive Trade News
• Mixed European Data Slows Earlier EURUSD Bounce
• Bank of Canada and US Pending Home Sales on Horizon

Japanese Yen Broadly Lower, Breaks Support Against British Pound
Markets seemed to regain some composure through Tokyo and London sessions as the previously unstoppable Japanese Yen fell against all major counterparts. The drop was enough to allow the British Pound to retrace earlier tumbles, while solid Australian economic data sparked renewed bullishness in the likewise high-yielding AUD and NZD currencies.
A rebounding Japanese equity market was the main culprit behind the JPY drop; gains in available liquidity allowed speculators to re-enter previously profitable trades, selling Yen and buying otherwise strong currencies. The Nikkei-related price moves were only compounded as the Yen cleared stops and forced short-covering across the spectrum. This dynamic was easily visible through the USDJPY pair, which cleared hurdles at 116.00 and 116.50 to trade near highs of 116.70 at time of writing. Notable economic data out of last night’s Tokyo session was limited to Australian Trade Balance figures. An unexpectedly narrowed trade deficit allowed the AUDUSD to move strongly off of session lows and sparked further AUDJPY retracement.
European hours provided no shortage of excitement, with relatively poor Euro Zone data leading to short-term EUR dips. Gross Domestic Product estimates were left unchanged at a year-over-year 3.3%, but January EZ Retail Sales numbers unexpectedly moved into negative territory on an annual basis. A resurgent EURJPY limited the impact of such moves in the EURUSD, but drops in the EURGBP signaled that investor confidence was clearly shaken on the news. Currency traders will likely leave EUR-denominated pairs broadly untouched as we await the results of Thursday’s ECB meeting.
The New York session calendar is relatively light, but traders should be mindful of surprises in the imminent Bank of Canada interest rate decision and US Pending Home Sales figures. The Canadian central bank is highly unlikely to change domestic rates through its announcement, but any fundamental shift in BoC rhetoric could take the USDCAD further off of its three-week highs. Likewise significant, traders will watch US housing numbers to gauge whether the domestic real estate market has truly bottomed out through early 2007 figures.