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Japan in focus as dollar yen plunges in Asia

QE tapering fears heightened overnight as the US trade balance numbers came in much better than expected.

All trading involves risk. Losses can exceed deposits.

The US trade deficit narrowed to $34.2 billion (versus consensus -$43.1 billion), while Fed member Charles Evans hit the wires and refused to rule out September tapering. Mr Evans is a voting member and also traditionally a dove; therefore his opinion is highly regarded. Lockhart was also on the wires suggesting tapering will start before the end of the year.

With that in mind, we would have expected to see the US dollar rally, but this wasn’t the case as trade remained relatively quiet in the US. It really just seems like we are in a consolidation phase at the moment, with investors hesitant to push this market higher than it already is.

USD/JPY dropped to ¥97.50 as the surprise USD weakness weighed on the pair. Weakness in the pair has extended in Asian trade with a fresh low of ¥97.11 being printed. Positioning is ramping up in the yen as we approach the business end of the week for Japan. Tomorrow brings Japan’s current account and the BoJ meeting. In light of the recent strengthening in the yen, perhaps the BoJ might finally be forced into action in a bid to keep the recovery on track. Traders should eye for support in that 97 region.

AUD/USD continued its recovery from yesterday’s rate decision but has stalled in the $0.90 region. Being a key level, traders are sceptical about pushing it higher and we are likely to see some selling heading into 0.90. There are a couple of economic announcements today with the AIG construction index and home loans data due out. RBA Assistant Gov Debelle will also be on the wires and this might be a source of volatility for the AUD. Yesterday’s statement didn’t give away much, but with jobs data and statement of monetary policy due later in the week, there is plenty of volatility on the way. Don’t forget we also have China’s trade balance numbers.

EUR/USD managed to push above $1.33 to a high of 1.332, and remains sidelined around those levels in Asia. On the calendar we have French trade balance and German industrial production later today and this could be a source of volatility. Traders will be hoping to see EUR/USD hold above 1.33 in anticipation for a move back towards 1.34.

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