Forex Afternoon Wrap – 10/06

Yen reacts to BoJ’s Kuroda comments; sharp gains across the board.

Key Notes:

• Japan core machinery orders m/m 3.8% vs. -2%
• Japan PPI y/y -2.1% vs. -2.2%
• Australia Westpac consumer sentiment -6.9% vs. 6.4% previously
• France industrial production m/m -0.9% vs. 0.4%
• Italy industrial production m/m -0.3% vs. 0.3%
• UK Manufacturing production m/m -0.4% vs. 0.1%
• UK industrial production m/m 0.4% vs. 0.1%; y/y 1.2% vs. 0.6%

Later:

• UK NIESR GDP estimate
• US Crude Oil inventories

The currency markets got off to an early volatile start as BoJ Governor, Kuroda commented on the Yen’s recent depreciation. Most importantly, the markets took notice of his comments that the Yen was unlikely to weaken further on the basis of a real effective exchange rate and that despite a Fed rate hike; the Yen wouldn’t weaken as the prospects of the rate hike were already priced into the markets.

The comments saw a sharp reaction from the Yen, which saw the USDJPY fall from session highs of 124.622 to trade below 123.3 and also posting fresh 11 day lows to 122.459 on Kuroda’s comments.

The Aussie and Kiwi dollars were relatively quiet, although the Aussie was seen making early gains compared to the Kiwi. AUDUSD rallied to post a session high to 0.7785 before easing lower but remains well poised to make further gains in the near term. The Aussie is susceptible to the monthly jobs report due early tomorrow. The Kiwi managed to stay above its previous lows near 0.7079 ahead of tomorrow’s RBNZ monetary policy decision.

Economic releases from the Asian session included Japan’s core machinery orders which rose 3.8% for the month, while producer price index declined on a softer note at -2.1% indicating continued decline in producer prices. Australia’s Westpac consumer sentiment showed a sharp decline, falling -6.9% from 6.4% previously but the Aussie was muted to the news.

From Europe, industrial and manufacturing production data was on the tap with Italy’s industrial production declining -0.3% while French industrial production also declined -0.9%. The Euro was unfazed by the news but remained within a tight range. The Euro currency was seen struggling to break above 1.1348 level of resistance for a second day.

Greece’s Prime Minister Alexis Tsipras is expected to meet with his German and French counterparts today in Brussels in continued negotiations to the bailout deal; however Greece’s headlines were a bit more subdued.

Economic data from the UK was more positive with industrial production showing strong gains, rising 0.4% for the month and 1.2% annually. Manufacturing production was however subdued, declining -0.4%. The Pound Sterling took the data in its stride, as the Cable rallied to test previous resistance at 1.5476, last seen, two weeks ago.

The US trading session today is quiet with no major news scheduled for the day. The US Dollar Index initially posted fresh session lows to 94.30 but managed to trim some of its losses to trade back near the 95 handle.

Later in the evening, the EIA Crude oil inventories report is due for release and the UK’s NIESR GDP estimates are expected as well.