JPY remains very weak – looks at key levels; AUD on defensive

The JPY weakened even further, perhaps in part driven by the previous complacency, as there were no readily apparent drivers for the move elsewhere. The Aussie looks troubled – in places.

The weak JPY move extended apace today, interestingly coming despite a pronounced reversal in bond markets, which rallied quite strongly on the day from new lows (high in yields). It looks like the market was focusing on the 200-day moving average in the US 10-year treasury yields as an important indicator – which lies at 1.86% - within a bp of the actual high of the yield today. USDJPY pushed above its 200-day moving average momentarily, but had pulled back almost precisely to hat level (around 79.20) as of this writing.

It was difficult to find any specific drivers for today’s action, though a strong UK Retail Sales report did spark an extension of the sterling rally after an early European sell-off attempt.

Odds and Ends
The UK had a “strong” month of Retail Sales in July, if you call unchanged and a rash of upward revisions of previous data strong. Doesn’t matter, of course, as the market wanted to take it as such and GBPUSD managed once again to avoid the sell-off impulse and push back to the 1.5700 area just below the 200-day moving average. The Olympics are worth considering here as a factor in keeping UK data buoyant in July through August, particularly as a driver for the recent surge in payrolls.

The early US data was relatively positive, with another rather low jobless claims number (though as I have written many times before, the most important season for claims is in the fall to January period). The housing starts number for July was a disappointment at -10k relative to expectations, but this was more than made up for with a massive advance in the US Building Permits to an annualized 812k, +42k more than in June and the highest since August 2008. Just for perspective, though, the permits were running at an over 2 million annualized rate in all of 2005 and were never this low if adjusted for the size of the population in the 1960-2007 timeframe (1960 was the beginning of the data series).

The later US was not so pretty, with a very week Bloomberg Consumer comfort survey (weakest since January of this year and certainly a developing story, given that we have a presidential election coming in two and a half months. The Philly Fed was very weak after yesterday’s weak Empire survey.

This is not on the map at the moment, but it is impressive to note the shrinkage of the Spanish trade deficit over the last 4 years since the beginning of the global financial crisis, a development that has picked up steam again this year. Today, Spain report a -2.7B Euro deficit for June, worse than the previous monthly, but better than the 4-5B Euro deficits of 2010 and 2011 and a far cry from the 8-9B monthly deficits back in 2008. Of course, the driver has likely mostly been the collapse in consumption.

Looking ahead
The crumbling JPY certainly sticks out as the most interesting development of the moment. The odd thing about the rather pronounced extension of the move today is that it has come despite the strongest reversal back to the strong side for government bond markets – so I’m wondering if the move could be in for a bit of a retrenchment in the short term unless bonds show some weakness again – it just doesn’t make sense to see the two markets out of synch for any period of time when both are rather volatile. Stay tuned.

As for the rest of this week, we’ve got little on the calendar up tomorrow, save for Canada’s CPI data and the US preliminary August University of Michigan confidence number. That latter number got more interesting after today’s weak Bloomberg Consumer Comfort survey reading.

Chart: GBPJPY
A banner day for GBPJPY, which rallied all the way to challenge its 200-day moving average today. Profit taking might set in if bond yields have topped here for now, but the size of the move has structural implications even if we see some consolidation short-term. Note the Ichimoku cloud level as well.

Chart: EURAUD
The Aussie’s performance has underwhelmed a bit lately, and it’s noteworthy despite all of the Euro’s woes that the single currency has managed to take back some ground versus the Scandies and the Aussie. The momentum has completely come out of EURAUD short trade, which has been one of the most popular of late and one wonders whether there is a high risk of a sharp squeeze in the coming week or two.

Economic Data Highlights

• UK Jul. Retail Sales ex Auto Fuel out at 0.0% MoM and +3.3% YoY vs. -0.2%/+2.0% expected, respectively and vs. +3.3% YoY in Jun.
• Euro Zone Jul. CPI out at -0.5% MoM and +2.4% YoY as expected and vs. +2.4% YoY in Jun.
• Euro Zone Jul. Core CPI out at +1.7% YoY as expected and vs. +1.6% in Jun.
• Switzerland Aug. ZEW Survey out at -33.3 vs. -42.5 in Jul.
• Canada Jun. Manufacturing Sales out at -0.4% MoM vs. +0.3% expected and 0.0% in May
• US Weekly Initial Jobless Claims out at 366k vs. 365k expected and 364k last week
• US Weekly Continuing Claims out at 3305k vs. 3300k expected and 3336k last week
• US Jul. Housing Starts out at 746k vs. 756k expected and 754k in Jun.
• US Jul. Building Permits out at 812k vs. 769k expected and 760k in Jun.
• US Weekly Bloomberg Consumer Comfort Survey out at -44.4 vs. -41.9 last week
• US Aug. Philadelphia Fed Survey out at -7.1 vs. -5.0 expected and -12.9 in Jul.

Upcoming Economic Calendar Highlights (all times GMT)

• New Zealand Q2 Producer Price Inputs/Outputs (2245)
• Germany Jul. Producer Prices (0600)