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USD regains some ground against the yen in Asia

US dollar weakness remained the dominant theme in the FX space, with bullish comments by Atlanta Fed President Dennis Lockhart also failing to lift sentiment. 

After Friday’s jobs reading perhaps some investors out there are sceptical about how ready the US economy is for tapering. Lockhart said the US economy is on solid footing and he would support further cuts to QE.

The greenback particularly gave up ground against the yen. USD/JPY slipped below 103 and traded at lows around the 102.90 region before bouncing back above 103. Japan was closed for the Coming of Age Day and it’ll be interesting to see how the Nikkei responds to the move in USD/JPY. Current account data out of Japan this morning came in much worse than expected and this might be a negative for the yen in today’s Asian trade. We still have the economic watchers survey data due out later today as well. I get the sense the sharp reversal lower in USD/JPY had to happen as the pair had gained significant ground over a short period of time.

However, I feel the balance of factors for the pair remains skewed to the upside if you assess both sides of the equation. On one hand Japanese officials remain ready to act to keep the current recovery on track, with speculation rife that the BoJ will inject further stimulus soon. Meanwhile US Fed members continue to talk tapering despite the poor payrolls print. We still have Plosser, Fisher and Bernanke set to speak this week and any bullish comments could see the USD come back to life. As a result, buying the dips remains my preferred strategy.

US retail sales in focus

AUD/USD has held its ground above 0.90 thanks to the USD weakness. The pair is currently at around 0.905 and returning to levels it traded in mid-December. Significant congestion zone in this region might encourage profit taking for short-term traders who were long. There is no major local data due out today, but we might get China new loans and M2 money supply data today or tomorrow at the latest. Given analysts are still trying to dissect the impact of the recent reforms, this data might cause some volatility.

In the US later today it’ll be all about retail sales as investors look at how the festive trading period got on. Given the miss in the payrolls, it’ll be also interesting to see if the weather had an impact on the retail sector. Yesterday I suggested traders could look at selling rallies AUD/USD above 0.90 in anticipation of a potential move back below 0.90 and towards December lows. I still feel this scenario could play out.

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