Daily FX Wrap: December 9, 2014

USD/JPY
Overnight, USD/JPY was initially seen in positive territory following WSJ Fed Watcher Hilsenwrath article which suggested that the Fed may drop the ‘considerable time’ rhetoric sooner rather than later. However, thereafter, the pair traded within a tight range before the sudden selloff as USD/JPY pulled away from yesterday’s 7y highs due to a bout of profit taking. Moreover, further strength was observed in the JPY as RANsquawk sources noted market participants unwinding their carry trade short positions in AUD/JPY, NZD/JPY and CAD/JPY, with further strength stemming from a safe haven bid into JPY alongside the weakness seen in stocks. In the European session, USD/JPY broke back below the 120.00 handle and the 119.00 falling more than 2%, thus cementing its position in negative territory heading into the European close.

AUD/USD
Overnight, AUD was the session’s laggard prompting AUD/USD to fall to its lowest levels since 9th July’10 led by real money account selling in the pair, further weighed on by weak NAB Business Confidence (16-month low)/Conditions data, with the bank forecasting two RBA cuts of 25bps each in March and August 2015. However, the pair has completely retraced the overnight losses breaking through 0.8300 and enters the European close in the green aided by the subsequently softer USD which has boosted the commodity complex.
Looking ahead, Thursday presents Australian Unemployment rate which will be looked upon as a catalyst which has the potential to dictate any major direction for the pair.

GBP/USD
GBP/USD kicked off the Asian session lower as participants booked profits after yesterday’s outperformance amongst the major pairs attributed to policy divergence. However, the pair has since fluctuated between gains and losses with UK manufacturing and Industrial Production falling short of expectations before GBP/USD mounted a recovery alongside the weaker USD.
Looking ahead, the UK do not have any remaining market moving data releases with the USD-index likely to dictate the currencies movements this week.