Sharp moves in USD/JPY

The main theme in the FX space was a surge in the US dollar on the back of the better-than-expected Q3 GDP reading.

US Q3 GDP came in at 2.8% (versus 2% expected). GDP surprises to the upside are becoming a trend in the US after another surprise back in July. The US dollar index (DXY) rallied to 81.46, its highest level since September, before reversing sharply to 80.76. A broadly stronger USD took USD/JPY to a high of 99.40 before the pair was greeted by sellers and dropped all the way below 98 as stops were also taken out. The pair printed a low of 97.61 but has found buyers in Asia and is back above 98 (98.20) now. Focus now switches to another round of US economic data with the key release being the non-farm payrolls reading.

The pullback in the DXY is perhaps an indication that traders are paring back on longs ahead of the non-farm payrolls. Consensus for non-farm payrolls is 120,000. However, given the fact the sample size this data was taken was right in the middle of the shutdown, a lot of analysts are eyeing a disappointing reading. Apart from the payrolls reading, we also have US personal consumption, personal income along with Fed members led by Bernanke himself. Any signs that tapering is still on the table will certainly push the USD higher and I’m currently eyeing buying the dips on USD/JPY.

What next for the euro

While the ECB rate cut was a surprise decision, analysts still feel this move was merely a token measure and the ECB will have to look at other measures to lift the economy. In his speech, ECB President Mario Draghi insisted the rate cut was a measure they were technically ready to implement and also alluded to the possibility of another LTRO. I’m sure we’ll hear more on the ECB’s options in coming sessions and this will likely be a driver of euro price action going forward. EUR/USD has found some stability at 1.34 in Asia and I still feel any moves higher, particularly into the 1.35 region, will be an opportunity for fresh selling.

Out of Europe today we have German trade balance, French industrial production, government budget balance and trade balance to look out for. However, attention will likely be on the NFP data and USD moves.

AUD sold off on RBA minutes

It’s been a tough session for the AUD and we’ve seen its losses accelerate on the back of the RBA minutes. The key takeaways were that the RBA didn’t rule out further rate cuts if needed and the high AUD will constrict exports. As a result, this dovish statement resulted in AUD selling with AUD/USD dropping to a low of 0.943. On the regional economic front we have China trade balance being the headline release, with a 23.5 billion trade surplus expected. Any disappointment on this front could result in further AUD selling.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.