Will Jackson Hole Create Some Volatility For USD/JPY?

USD/JPY breaks through 99.00 but can’t hold it
UK GDP better at 0.7% vs. 0.6% helping boost cable
Nikkei 2.21% Europe -0.12%
Oil $105/bbl
Gold $1375/oz.

Europe and Asia:
EUR German GDP 0.7% vs. 0.7%
EUR EZ Consumer Confidence n/a
GBP GDP 0.7% vs. 0.6%
GBP BBA Loans for House Purchase 37.2K vs. 38.8K

North America:
USD New Home Sales 10:00
CAD CPI 8:30
CAD Bank of Canada CPI 8:30

It’s been another listless session on the final trading of the week in the currency market with only USD/JPY and GBP/USD showing any movement whatsoever as the rest of the currencies remained in the typical summer doldrum slumber.

In Asia USD/JPY managed to break through the 99.00 barrier on the back of a strong rally in the Nikkei which closed the day up more than 2%. USD/JPY has been consistently bid since the release of the FOMC minutes this past Wednesday which revealed that most of the members were ready to consider the notion on tapering, although some had reservations about the timeline.

Nevertheless the market consensus seems to be building that the Fed will move sooner rather than later, and currency traders will look for any clues from today’s Jackson Hole symposium on the US monetary authorities near term intentions. Still this may be yet another false dawn in USD/JPY as US data remains decidedly mixed and the Fed will no doubt look for further guidance from the August NFPs before making any definitive decisions on the QE taper.

USD/JPY backed off the 99.00 figure in mid-morning London trade, but may resume its climb later in the day especially if New Homes Sales beat expectations. Wednesday’s Existing Homes Sales showed a strong increase in units sold indicating that demand in the housing market remains robust despite the uptick in rates. Still, the true driver of trade in USD/JPY will be the Fed which means that traders will have one eye pointed towards Wyoming for the rest of the day.

Meanwhile in UK the 2nd revision of GDP printed a bit better than expected at 0.7% versus 0.6% eyed. Exports rose the most in more than a year and net trade contributed 0.3%. Overall a pick in manufacturing and construction helped to drive growth. Manufacturing grew by 0.7% versus 0.4% forecast and construction was revised 1.4% higher from 0.9% initially projected.

The news bodes well for the pound, as the better than expected UK growth figures suggest that the need for further QE has diminished. The pair popped above the 1.5600 figure to trade as high at 1.5638 but has since retreated off the highs as profit taking continues to dog cable. GBP/USD faces very stiff resistance at the 1.5700 level and despite today’s positive news may have a difficult time rallying in this late summer markets.

With no major news on the docket for the rest of the day currencies may continue to tread water, but they remain vulnerable to any off hand comments from Jackson Hole and therefore sharp price moves remain a very real possibility as the day proceeds.