USDJPY pulled to new highs overnight as anticipation grows next week that Japan's prime minister, Shinzō Abe, will call snap elections next week for mid-late December. The kicker is any signal on whether Abe will seek to delay the VAT hike scheduled for October of next year (a hike of 2% to bring the rate to 10%).
We may see a quick run-up in the JPY pairs to their highs for the cycle if we get a yes to both new elections and delay in the sales tax hike before JPY pairs start to consolidate. According to Nikkei, the delay Abe will seek is for 18 months, which is likely out of consideration for the timing of elections (the reason he is calling for elections now is that the planned next VAT tax hike would have come just before the elections next year).
European Central Bank Governing Council member Christian Noyer was out saying that there is no obstacle to the ECB buying government bonds if interest rates rise too much or the Eurozone suffers any negative shocks. Noyer is French, of course, and the German Bundesbank's president, Jens Weidmann, was out yesterday essentially telling the market not to get its hopes up about ECB buying of sovereign bonds. The ECB needs to get its story straight or SocGen’s Albert Edward’s prediction yesterday that EURJPY will hit 170 may prove accurate.
GBP saw further significant downside late yesterday and overnight as sentiment toward the pound has really crumbled in the wake of the Bank of England's inflation report on Wednesday and the significant 1.5725 support area gave way without ever putting up much of a fight. Broadly speaking, the pound selling looks a bit excessive in the nearest term, with EURGBP and GBPJPY the best places to look for a bounce in today’s trade.
Looking ahead
The USD has staged another rally after finding itself pressed up against the ropes again yesterday, offering the bulls hopes that it can pull through here and continue its rally next week (in a broader sense in isolation from the weak GBP and weak JPY).
Chart: AUDUSD
AUDUSD sold off rather heavily after teasing through the 0.8750 resistance area yesterday, which is now doubly important after yesterday’s reversal. Looking for follow through lower now to set up a “re-break” of the lows of the cycle and move toward 0.8100/0.8000. 
We have a number of Q3 GDP numbers for Europe today, with the Eurozone number itself up at 10.00 GMT, together with the final October CPI data. Not looking for any surprises there, though we should perhaps lean toward the upside of expectations as both the French and German GDP prints this morning surprised to the upside.
With neither the US Federal Reserve nor the market knowing what the Fed plans to do next year, “incoming data” out of the US takes on exaggerated importance, and after a week of sparse US data, this means that today’s October US Retail Sales report looms larger than it normally does.
September’s retail sales report was very weak, so mean reversion would mean we should lean for an upside surprise. One risk is that lower petrol prices could mean a drop in spending as this is an inelastic component of consumer spending and could mean that consumers saved some of their gas money rather than spending it elsewhere.
This weekend we have a G-20 summit in Brisbane that has to be one of the most interesting in recent history considering what is at stake. The situation with Russia over Ukraine is at its hottest in recent months and the oil price tanked another three dollars/barrel yesterday. That, and a record low JPY exchange rate and record high CNY exchange rate at the same time, means enormous pressure is on China to respond to Japan’s aggressive move to import inflation and demand with its extreme policy.
The question is whether all of the inevitable sparks that will be flying this weekend will all be contained behind the closed doors of the summit or whether the press gets hold of any leaks that give us a flavour of at least the temperature of the discussions, if not the specifics. The countdown to a Chinese yuan devaluation starts on Monday, as the APEC summit and G-20 summit will be out of the way at that point.
Be aware that New Zealand and Japan report important figures early in Monday’s session in Asia.
Economic Data Highlights
- France Q3 GDP rose +0.3% QoQ and +0.4% YoY vs. +0.1%/+0.4% expected, respectively and vs. +0.0% YoY in Q2.
- Germany Q3 GDP rose +0.1% QoQ and +1.2% YoY vs. +0.1%/+1.0% expected, respectively, and vs. +1.4% YoY in Q2.
Upcoming Economic Calendar Highlights (all times GMT)
- UK Sep. Construction Output (0930)
- Eurozone Oct. CPI, final estimate (1000)
- Eurozone Q3 GDP estimate (1000)
- US Oct. Retail Sales (1330)
- Canada Sep. Manufacturing Sales (1330)
- US Fed’s Bullard to Speak (1410)
- US Nov. Preliminary University of Michigan Confidence (1455)
- New Zealand Oct. Performance of Services Index (Sun 2130)
- New Zealand Q3 Retail Sales ex Inflation (Sun 2145)
- Japan Q3 Preliminary GDP (Sun 2350)
Disclosure: To subscribe to the Daily Shot letter by e-mail please enter your e-mail address here: Subscribe to the Daily Shot