Market Drivers January 16, 2013
Yen crosses hit profit taking
Australian consumer sentiment improves
Nikkei -2.56% Europe -0.48%
Oil $93.25/bbl
Gold $1679/oz.

Europe and Asia:

AUD Westpac Consumer Confidence 0.6% vs. -4.1%
JPY Machine Orders 3.9% vs. 0.4%
CHF Retail Sales 2.9% vs. 3.3%
EUR Eurozone CPI n/a

North America:

USD CPI 8:30
USD Net Long-term TIC Flows 9:00
USD Industrial Production 9:15
USD Manufacturing (SIC) Production 9:15
USD Fed Beige Book 14:00

Profit taking in USD/JPY and yen crosses has been a drag on risk currencies in Asian and early European session tonight with trading dominated by technical rather than fundamental factors as currency pairs fell through key levels of support. Further liquidation of USD/JPY positions pushed the pair below the 88.00 figure triggering further selling from model funds that quickly sent it tumbling to a low of 87.80 before finally finding some support.

USD/JPY continues to be under pressure after comments yesterday by Japanese Economics minister Akira suggested that the currency may have weakened enough for the time being. Japanese officials are trying to walk a fine between weakening the currency enough to stimulate demand for the export sector, but not so much that it would materially increase the cost of imports especially oil.

With USD/JPY having failed twice at the recent swing highs of 89.50 the pair was ripe for profit taking and shorts pressed their case throughout the night finally breaking the 88.00 barrier. For now however the pair continues to find support just underneath this level and we'll need to see a fresh wave of liquidation to push it lower towards the next support at 87.50.

The selloff in yen pairs weighed on the euro through the EUR/JPY cross which dipped to a low of 116.50 in morning European dealing but the euro was also weak in reaction to comments made by outgoing Eurogroup President Jean Claude Juncker who stated yesterday that the strength of the currency was threatening the region's economy. The pair continues to be under pressure today, trading below the 1.3300 level but so far has not breached yesterday's lows of 1.3260 as it continues to hold a very narrow range in European session.

The overnight eco news has been sparse at best with only a smattering of second tier releases hitting the the market. In Australia, the Westpac consumer sentiment survey saw a small bump higher rising by 0.6 points from the period prior. The improvement in the overall number however was offset by declining sentiment about family finances with the subindex measuring that value dropping by 1.2 points over the next 12 months. Aussie initially rose to session highs in the immediate aftermath of the data but has since slid to session lows as broader risk off flows weighed on the pair.

Latest comments by ECB member Nowotny helped reverse some of the dour sentiment in mid-morning European trade as he dismissed worries about strengthening euro noting that the rising exchange rate was not a matter of major concern to monetary officials as he emphasized the recovery of the region. His comments helped to lift the EUR/USD back above the 1.3300 level but the pair is likely to run into further resistance at 1.3350 especially if US equity markets remain lackluster.

In North America today the calendar is relatively quiet with only a smattering of releases in the morning including the latest NAHB Housing survey.The key economic focus however is likely to be the Beige Book survey released at 1900 GMT. The currency market will look for any clues of a potential slowdown given the gridlock in Washington and the recent compromise on budget which increased payroll taxes by 2%.

For the time being risk FX appears to have survived the latest bout of profit taking and has stabilized into North American trade, but we doubt that the correction is complete and if equities see further weakness in US session, currencies will likely follow with fresh lows on the day.