The Dow Jones FXCM Dollar Index hit fresh monthly lows this morning but has since regained all of its losses, in part to investors dropping the Japanese Yen amid improving risk-appetite. Accordingly, after losing nearly one percent over the past week, the USDOLLAR is working on a minor daily Hammer candlestick, a potential bullish reversal indicator.
The Yen’s pullback can be attributed to two factors in the wake of the weak August US labor market report, which initially stoked a sharp pullback in USDJPY and seemingly had set up the Yen for further advances. First, on the economic front, August Chinese Industrial Production grew faster than expected at +10.4% versus +9.9% (y/y); and August Chinese Retail Sales beat at +13.4% versus +13.3% (y/y).
Signs of a stabilizing China will help calm emerging market fears, reduce demand for the Yen, and boost demand for high beta currencies like the Australian Dollar. It is of little surprise then that the Australian Dollar, riding high as a new political administration ushers in hopes of a new economic age, has found itself back in the driver’s seat on Tuesday.
The second reason for the Yen pullback today is a possible ‘out’ in Syria for the United States and Russia. Apparently, at the G20 conference, Russian President Putin approached US President Obama about an international weapons sequester that would see any chemical weapons in Syria’s possession turned over to international authorities, so as to avoid airstrikes led by the United States.
Considering that we’ve seen the USDJPY drop in tandem with US Treasury yields on Syrian headlines, any such progress to avoid military conflict is seen as a bullish catalyst for risk-appetite; indeed, Gold and Silver are sliding today as well.
AUDJPY 5-minute Chart: September 9, 2013 Intraday
Taking a look at European credit, the Euro has failed to take advantage of higher core rates and softer peripheral ones, as it remains lower on the day versus the US Dollar. The Italian 2-year note yield has decreased to 2.010% (-4.2-bps) while the Spanish 2-year note yield has decreased to 1.669% (-5.1-bps). Likewise, the Italian 10-year note yield has decreased to 4.487% (-3.1-bps) while the Spanish 10-year note yield has decreased to 4.462% (-7.0-bps); lower yields imply higher prices.
Read more: Aussie Firms on Election Outcome – Rally Unjustified Given Economic Pitfalls
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
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— Written by Christopher Vecchio, Currency Analyst
