JPY Crosses Plunge Overnight on Risk Aversion from Carry Trade, Then Recover in NY Trading

Daily Forex Fundamentals | Written by CMS Forex | Aug 13 08 21:03 GMT |

JPN GDP For 2nd Quarter Declined 0.6%, Annual Pace at -2.3% Japanese GDP hit forecasts of a 0.6% decline for the 2nd quarter, with annualized GDP falling to -2.3%. The economy had expanded a downwardly revised 3.2% in annual terms in the 1st quarter. Exports declined in the 2nd quarter, the first time that's happened in 3 years. The Japanese stock index, the Nikkei 225, was down 2.1% on the news, which boosted a wave of risk aversion in the Asian session. JPN Current Account Suprlus Shrinks The current account surplus for Japan shrank to Y490 billion. That's the 4th straight month of declines and reflects a similar situation as the GDP data. Foreign demand for Japanese products is stalling, as the BOP basis trade balance showed. AUS Consumer Sentiment Rebounds for August, Wages Rise More Than Expected In Australia, the WMI consumer sentiment increased 9.1%, as consumers felt optimistic about recent drops in oil. Wages in Australia rose 1.2% in the 2nd quarter and are up 4.2% on the year. Those figures beat expectations, and will worry the RBA as it reflects the potential for inflation pressures to continue. AUD/JPY - Aussie Slides vs Yen in Overnight Trading, Recovers in NY Session The Aussie-Yen pair, a favorite of carry trade because of the high interest rates in Australia and the low ones in Japan, showed a clear case of risk aversion overnight. Traders, seeing the poor GDP and stock performance from Japan, sold the pair down to the 92.10 level. From here the Aussie found support and managed top pare all the overnight losses. UK Claimant Count Up 20K, 6th Month of Increases In the UK, July's claimant count increased by 20K, the highest since December 1992.It's the sixth straight month of increase in unemployment claims and comes on the heel of an upward revision in June. The unemployment rate rose to 5.4% for the 3 months through June, from its previous 5.2%. UK Wages Down, BoE Sees Peak to Inflation, Lowers Growth Projections Wage growth in the UK were down to 3.4%. The data makes it apparent that the labor market in the UK has slackened. The Bank of England's quarterly inflation report suggested that inflation in the UK will come down rapidly after peaking in the next month or so. The bank also cut its growth forecasts, signaling that policy members may be more dovish going forward. GBP/JPY - Pound Sinks vs Yen as Carry Trade Pulls Back Overnight The Pound-Yen, another favorite for carry trade, was down sharply as well. From an overnight high near 207.40 the pair plunged 450 pips in the Yen's favor, finding support near 202.50. Today's losses came mainly after the BOE report and continued into early NY trading. At its support the pair began to rally somewhat, climbing back to 204.40 in the afternoon. GBP/USD - Pound Tumbles vs Dollar Following BoE Report The Pound-Dollar pair saw a 250-pip move in 2 hours following the UK releases. After a period of consolidation yesterday, the Pound now breaks below 1.8950, continuing the selling in this pair witnessed last week. The pair was near 2.0 at the beginning of this month. Following the US releases, the Dollar extended its gains to test 1.8650. US Retail Sales Down -0.1% As Auto Sales Dissapoint Against this backdrop, US retail sales data did not have as much impact. Sales fell 0.1%, with the "Core" reading which excludes autos rising 0.4%. The jump in sales seen following the tax rebates has now definitely faded. US Import Prices Climb 1.7% m/m The US import price index climbed 1.7% on the month, and is now running at a 21.6% annual pace. The fall in the Dollar and increase in oil and energy prices are the major factors here. US Business Inventories up 0.7% in June, Sales Up 1.7% US Business inventories were up 0.7% on the month, higher than expected. With sales up 1.7%, the inventory-to-sales ratio decreased yet again to a record low of 1.23. An increase in inventories while sales are also up as well is a positive sign for GDP. USD/JPY - Dollar Falls Overnight to Yen but Recovers in NY Trading US stocks were down today as the auto industry took a bite out of the sales data and earnings outlooks looked shaky. The Dollar-Yen fell during the Asian session, but support held at 108.40, and the pair was trading 30 pips higher as of 11AM EST. Since hitting a high near 110.30, the Dollar has retreated about 180 pips. Upcoming Releases Tonight, Japan releases its measure of the services industry and New Zealand posts its Manufacturing PMI. Overnight, Switzerland reveals a report on consumer confidence. Germany will post its GDP and CPI data. Also overnight, the Euro-zone releases its CPI and GDP, along with the ECB monthly bulletin. Tomorrow in the US, we get another round of data on consumer prices along with weekly jobless claims. 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