USD/JPY should find sellers around 104.20..Buyers likely at 103.25 for the short term

The opening London Session of the week has seen a continuation of high volatility, offering traders the fates of victory or defeat in a merciless fashion. The market has lacked forgiveness, with even skilled traders unable to trade around positions on the wrong side. The dominant theme of the day came via UK inflation data, which surged to the highest level since 1995. Following an early US dollar bid, the British Pound took center stage and rocketed higher with the release. The secondary story has revolved around a very soft Japanese Yen. The currency has forfeited gains from last week’s risk aversion trade and now sits on the defensive.

The opening London price action has been typical of the movement seen recently, characterized by directional dips and pops abruptly halted and immediately reversed. This whippy trading occurred again, best shown in both EURUSD and GBPUSD. The pairs plunged at a rapid pace to lows of 1.5365 and 1.9440 respectively. Just as it appeared a climactic sell off (USD rally) was to ensue, traders aggressively twisted the currencies in the opposite direction. Short-covering quickened the pace of the rebound as Cable plowed to 1.9500 heading into the 0830 GMT (0430 EDT) release of April Producer Prices. The robust readings soared past estimates and sent the British pound off to the races, with GBPUSD ascending a full big figure as of this writing.

The US dollar had fared well prior to the UK inflation numbers, but crumbled thereafter. The lone exception has been USDJPY, which has led methodical rise to levels just shy of 104.00. Running in tandem has been EURJPY, which has arguably been the biggest winner on the day. Once the cross took out 159.50 resistance, it bullied its way higher, clearing a path to a 160.40 high. In a possible reversion back to the “risk” trade, the high-yielders have lifted as well, with AUDUSD adding 90 pips from its 0.9355 London lows.

The New York economic agenda is very light, so expect these UK headlines to continue to be the chatter across trading desks. Lastly, lest we forget, crude oil is hovering in the stratosphere of $126/barrel at the moment, numbing those that pay at the pump into pure denial.   

Upcoming Economic Data Releases (New York Session)

0830 EDT Canada – Mar New Housing Price Index MoM, consensus: +0.2% (relevance: low)

1400 EDT US – Apr Monthly Budget Statement, consensus: +$160.0B (relevance: medium)

 The beginning of the trade week in Asia brings some talk of the US Dollar being oversold, thus the dollar strength that we are seeing at play tonight. As well, we see futures traders betting there is an 82% chance that the Fed is done with its cutting cycle, while looking across the big pond it would seem that the ECB is getting closer to beginning an easing cycle due to weakening economic growth. The possible end of rate lowering in the US and the possibility of future cuts in the Euro-Zone make the dollar a more appealing destination. In the markets, the EUR/USD opened up and took off to session highs at 1.5484 and then took a header south to bottom out a tad above the 1.5400 figure, ending the Asian night hovering just above that area. The British Pound followed the Euro leader, opening up and hitting 1.9522 highs and then falling off to 1.9460 lows. By sessions end the GBP/USD rebounded to end out near 1.9475.

As happened on Friday, USD/CAD and USD/CHF both took off right out of the gate. USD/CAD starting out at 1.0050 levels and added almost 40 pips by session end, in USD/CHF, we saw the same strength, ending at about 1.0476, 70 pips higher than the low.

It seems most people are seeing the dollar as a good buying opportunity at these levels.

USD/JPY stumbled out of the gate, hitting a 10255 low and then strapped in for a ride straight up to 1.0348, reversing a losing streak vs. the yen that the dollar was victim of most of last week. EUR/JPY rallied late and touched the 159.47 level before settling in to trade sideways near 159.35.

Look for this week’s US economic data to bring some mixed signals and we’ll have to wait and see how the moves are translated and if the Dollar can keep its new found foothold.

    Upcoming Economic Data Releases (London Session):

0430 EDT UK – PPI Input s.a. (MoM), previous: 1.80% consensus: 1.80%

0430 EDT UK – PPI Input NSA (YoY), previous: 20.60% consensus: 21.40%

0430 EDT UK – PPI Output n.s.a (MoM), previous: .90% consensus: .60%

0430 EDT UK – PPI Output n.s.a (YoY), previous: 6.20% consensus: 6.40%

0430 EDT UK – PPI Output Core SA (MoM), previous: .30% consensus: .30%

0430 EDT UK – PPI Output Core NSA (YoY), previous: 3.10% consensus: 3.20%

0430 EDT UK – Visible Trade Balance  GBP/Mn, previous: -7487GBP consensus: -7500GBP

0430 EDT UK – Trade Balance Non EU GBP/Mo, previous: -4023GBP consensus: -4000GBP

0430 EDT UK – Total Trade Balance GBP/Min, previous: -4439GBP consensus: -4400GBP