U.S. Forex Market Commentary

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥111.20 level and was supported around the ¥109.65 level.  The pair reached its highest level since 16 November as traders continued to speculate that a rate cut by the Fed will help the U.S. economy.  Many data were released in Japan overnight. First, October core CPI was up 0.1% y/y, the first rise in ten months and the latest evidence that Japan may finally be overcoming its long-standing bout with deflation.  Some traders believe Bank of Japan will press to raise interest rates by +0.25% to +0.75% before the end of the current fiscal year in March.  Second, October all-household spending was up 0.6% y/y and October orders received by the 50 largest contractors were off 22.7% y/y.  Third, the October consumer sentiment reached its worst level in nearly one year.  Fourth, October housing starts fell 35% and October unemployment was unchanged at 4.0%, as expected. The Nikkei 225 stock index gained 1.08% to close at ¥15,680.67.  Dollar bids are cited around the ¥109.25 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥163.80 level and was supported around the ¥161.80 level. The British pound and Swiss franc gained ground vis-à-vis the yen as the crosses tested offers around the ¥229.30 and ¥99.05 levels, respectively.  The Chinese yuan weakened sharply vis-à-vis the U.S. dollar as the greenback closed at CNY 7.4000 in the over-the-counter market, up from CNY 7.3824.  Traders will closely monitor Monday’s meeting of eurozone finance ministers following recent meetings between Chinese and European officials about the yuan’s value vis-à-vis the euro.