International Trading



The BOJ dominated headlines as it injected 10 trillion yen of liquidity in additional quantitative easing measures. While this move saw the Nikkei 225 surge by about +1.76%, the currency market shrugged off the news as they did not view it as aggressive enough. The BOJ did not do enough to stop the rise of the yen as the JPY-crosses corrected after the initial knee-jerk move higher following the announcement of the boost in the lending facility. While it is encouraging that the BOJ seems to be moving in the right direction, the response from the central bank was underwhelming and came as a disappointment.
U.S. Treasury yields seem to be dictating the direction of the yen. The initial weakness in the yen came on Friday after Benanke’s Jackson Hole speech elicited a rally in U.S. treasury yields, specifically the 10-year yields which currently have over a 90% correlation with USD/JPY. The yields rallied to highs around 2.66% on prospects of ‘additional monetary accommodation through unconventional measures’ as stated by the Fed Chairman. U.S. 10-years have since shed about 6 basis points from these highs subsequently dragging USD/JPY lower. It appears that the speculators are reluctant to sell the yen and continue to chase it higher. The common saying that “the trend is your friend” has benefited yen longs as the USD/JPY tumbled to current levels around 84.60 from overnight highs of around 85.90.
In Europe, Eurozone economic confidence reached its highest level since March 2008. The indicator surprised to the upside with a print of 101.8 while the market was anticipating a rise to 101.6 from the prior 101.1. The market remains undecided on EUR/USD over the past few weeks as prospects of a better Eurozone, evidenced by the stream of positive economic data has supported the euro while risk aversion which has been strengthening the greenback. EU sovereign debt issues and growth divergences between the core and peripheral nations still remain a major concern for the common currency. EUR/USD traded in a range between roughly 1.2700-1.2775 and as of now European bourses are mixed.
On the data front for the upcoming NY session is U.S. July Personal Spending and Personal Consumption Expenditure numbers at 0830EDT. Canada’s 2Q Current Account and July Raw Materials Price Index and Industrial Product Price Index are also due out at 0830EDT. The Dallas Fed manufacturing Activity reading is due for release at 1030EDT.