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.

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