Is 106.00 the Bottom for USDJPY?

Market Drivers February 15, 2018
USDJPY hits fresh lows
AU Employment mixed
Nikkei -1.47% Dax 0.72%
Oil $60/bbl
Gold $1354/oz.
Bitcoin $9900

Europe and Asia:
AUD AU Employment 16K vs. 15.3K

North America:
USD PPI 8:30
USD Empire and Philly Fed 8:30
CAD ADP Employment Report

Another day of declines for the dollar, as USDJPY hit fresh multi-month lows in Asian session trade taking out the 106.50 level and threatening to take out the 106.00 figure.

The latest round of selling was caused by comments from finance minister Aso who stated that recent yen strength was not enough to require intervention and that the decline was not abrupt enough for the MOF to consider any type of active measures.

Still, the rising cost of the currency is sure to trouble Japanese policymakers as they try stimulate growth and inflation in the country both of which are threatened by the current exchange rate. Last night sharp decline in machinery orders – a volatile number for sure – may be the first sign that the rise in yen is starting the hurt the country’s export-driven growth.

The greenback’s weakness remains persistent across the board as investors continue to ignore the rise in US yields for fear of rising twin deficits from trade and budget. Yesterday’s US data produced the worst of both worlds scenario as inflation spiked while consumer demand waned indicating that the Fed may be forced to hike rates regardless of any slowdown in final demand. The dollar clearly needs some positive news on the economic front that would negate the stagflation narrative, but for now the data remains elusive.

The weakness in the dollar was evident even in the Aussie which rose to fresh weekly highs despite the fact that employment data came in a bit soft with full-time jobs declining by more than 50K although the headline number printed at 16K for 16th consecutive month of positive gains. There was nothing in the report to move the RBA off its resolutely neutral stance for now as wage gains remain muted, but as labor force continues to tighten the central bank may have to shift its position sooner than the market believes.

In North America today there is only a smattering of second tier data including weekly jobless claims, Empire and Philly Manufacturing and PPI data. None of the reports are large market movers but any positive surprise could provide a spark for some short covering in USDJPY which remains grossly oversold. The pair has seen a near vertical drop of 700 points over since the start of the year and the 106.00 figure is likely to bring out some long-term buyers out of the woodwork, but for now the momentum is with the shorts and they are almost certain to press the 106.00 figure later in North American trade if data disappoints and risk aversion flow return.