Yen Stronger on Risk Aversion, USDJPY Below 80

The yen is higher in Asia-Pacific trading as regional stocks decline and Japans current account surplus beat expectations. With USD/JPY trading below 80, Japanese Cabinet Secretary and potential PM Edano said they are watching FX moves closely. Swiss employment and German industrial production are highlights of the upcoming European session.

Risk aversion has carried over from a soft US close. The Nikkei is down 0.4% while futures on the FTSE were off 0.58% and on the S&P 500 they are down 0.23%. Copper is down 1% and precious metals are also down slightly.

AUD/USD has now fallen below its post-RBA lows while AUD/JPY is barely above those lows with buyers defending 85.00. Yesterday before the RBA, premium subscribers were offered a short-term AUD/JPY trade with a tight stop that later yielded 85 pips in minutes.

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Japans current account surplus was stronger than expected in April (at 405.6B compared to the 210.0 expected). The CA figures provided only a small boost as it fell 69.5% y/y due to the disaster. Edano may be talking about intervention but the risk remains remote at these levels.

UD and NZD are lagging despite upbeat Australian lending data. Home loans increased 4.8% in April compared to the +2.3% expected. It was the largest rise since March 2009.

European Preview

Anticipation about Thursdays ECB decision should limit volatility in Europe to an extent. German and French trade figures will be released but the highlight wont come until 1000 GMT with the release of German April industrial production. The consensus is for a 0.2% rise versus the +0.7% prior. The market may have built in slightly higher expectations due to yesterdays factory orders data.

& Adam Buttom