Market Drivers for April 07, 2016
Europe and Asia
AUD: AU AIG Construction 45.2 vs. 46.1
North America
USD: Weekly jobless claims 14:00
Strong yen/weak pound has been the dominant theme in the currency market this week and today's price action was no different with USD/JPY breaking yet again to fresh, multi-year lows as the pair took out the 109.00 figure.
The collapse in the pair has been nothing short of stunning as it is now down 400 points this month alone and momentum is showing no sign of easing. The BOJ for its part has been missing in action and traders who counted on some sort of intervention at the 110 barrier have been sorely disappointed, as Japanese officials remained relatively unconcerned. Indeed, tonight's comments from BOJ's Nagoya region branch manager only served to accelerate the fall in the pair when he noted that recent yen strength would not hurt the region's exports.
BOJ officials have constantly stated that they are more concerned about the speed of the moves in the currency market rather than direction, but at this point they must be worried about both as the strong gains in the yen along with sharp increase in volatility are likely wreaking havoc with corporate hedging books. Nevertheless, the BOJ appreciates that any effort at intervention is likely to be short-lived as has been the case in the past. It's possible the central bank may be looking for the "best bang for the buck" at a time when it catches most of the market flat footed.
Some traders believe that the central bank will become very concerned at the 105 mark, while others think that only the 100.00 level will unleash their full fury. In either case they must be watching the markets carefully despite their laissez-faire stance and chances are that some action will occur the closer we come to those levels. For now, the trade remains a one way move with shorts controlling price with impunity and despite the grossly oversold nature of the trade it may not turn just yet.
Elsewhere, cable continued to weaken with the pair reversing yesterday's gains to trade back towards the 1.4000 figure. Dollar-sterling volatility has risen to 16% - the highest level in nearly 10 years as the specter of Brexit looms over the market and Leave/Stay votes remain in a dead heat.
With very little on the eco calendar today, the yen flows will likely dominate US trade as well. Having broken below the 108.50 figure, shorts will no doubt try to press the 108.00 level and its may well be tested as the day progresses.