Market Drivers July 29, 2013
USD/JPY drops through 98.00 as Nikkei sinks
Abe - still uncertain about sales tax implementation
Nikkei -3.32% Europe -0.40%
Oil $104/bbl
Gold $1330/oz.

Europe and Asia:
JPY BOJ Kuroda Speaks at Research Institute of Japan
JPY Retail Trade 1.6% vs. 1.7%
GBP Net Consumer Credit 1.5B vs. 1.4B
GBP Mortgage Approvals 58K vs. 60K

North America:
USD Pending Home Sales 10:00

Its been a very slow session on the first trading day of the week with high beta currencies carving out very narrow ranges amidst a very quiet economic calendar with only USD/JPy making any meaningful moves as the pair came under further selling pressure in the wake of a 3% slide in the Nikkei.

USD/JPY sunk to a low of 97.62 as liquidation in the Nikkei triggered some risk aversion flows in Asian and early morning European trade. The pair continues to trade heavy after failing at the 100.00 level as investors remain cautious about Fed's tapering plans as well as concerned about Japan's efforts at fiscal reform.

Prime Minister Abe is rethinking the timetable for the implementation of a new sales tax due to take effect this fall. Although Finance Minister Taro Aso tried to reassure investors that plans to introduce the sales tax will proceed on schedule, Mr. Abe has expressed some reservations regarding the sales tax. He is concerned that a fresh levy on consumers could stifle the country's nascent recovery before it has a chance to take hold.

Indeed the state of the Japanese consumer remains perilous with demand still in question as today's Retail Trade data disappointed printing at 1.6% versus 1.7% eyed. Mr. Abe therefore has to walk a fine line between assuring investors that proper fiscal reforms will take place to mitigate the country's massive 5 Trillion dollar debt, while at the same time he must pursue an aggressive expansionist policy in order to continue stimulating the economy. This conflict has caused a retrenchment among USD/JPY longs and the pair remains under pressure for the time being.

In North American trade the calendar remains quiet for the day with only the US Pending Homes on the docket. Trading continues to be dominated by technical rather than fundamental factors as EUR/USD continues to find resistance just ahead of the 1.3300 barrier. However, if the housing data shows any weakness, the barrier which so far has been defended successfully will likely fall as the day proceeds.