Market Drivers for May 10, 2016
Europe and Asia
CNY: CPI 2.3% vs. 2.3%
EUR: GE Current Account 30.4B vs. 25B
GBP: UK Trade Balance -3.8B vs. 4.2B
North America
USD: JOLTS 10:00
The short-covering rally in the USD/JPY continued during Asian and early European trade today, taking out the 109.00 figure after Japanese Finance Minister Taro Aso warned that one sided moves in the Japanese yen will not be tolerated.
Speaking to reporters, Mr. Aso noted that Japan has no interest in manipulating rates on a long term basis, but warned that one sided moves in the currency will not be accepted. He stated:
"Currency moves have been one-sided and if this move accelerates, we're determined to stop it."
The new aggressive tone from Mr. Aso, whose Finance Ministry has the actual responsibility for exchange rate policy, was taken seriously by the market with USD/JPY rising steadily through the night as it took out the 109.00 barrier with nary a retrace. Japanese officials are clearly fed up with persistent yen strength in the market, especially in light of the BOJ's massive QE program that has expanded money supply by 3X.
Although the MoF is unlikely to give the green light for intervention at current levels, Mr. Aso's statements were clearly meant to serve as a "brushback pitch," putting the market on notice that any further yen strength will not go unanswered. Japanese officials are especially keen to keep USD/JPY above the 105.00 level. A fall below would be very onerous for the country's critical export sector, most of which is hedged much higher at 115.00. Ideally Mr. Aso and company would like to see USD/JPY trade above the 110.00 figure, with markets naturally pushing the pair above that mark.
Whether Mr. Aso's soft form of intervention will work remains to be seen, but given the grossly oversold state of the USD/JPY a short covering rally was due. His comments came at the right time, helping to spark the move in a generally quiet, listless market.
In North America today the calendar remains subdued with no major economic data on the docket. Trading could be muted for the rest of the day. Having taken out the 109.00 barrier, USD/JPY is likely to find further upside action to be more challenging as fresh shorts are likely to pop out of the woodwork ahead of the psychologically key 110.00 figure. For now however, Mr. Aso has certainly turned the sentiment in the market; USD/JPY looks to be a buy-the-dip trade for the foreseeable future.