A Yen Correction? Aussie GDP Next

The US dollar corrected and yen crosses slipped ahead of the large data risks coming up. The yen was the best performer while USD and CAD lagged. Australian GDP is the main event on the calendar.

The high flying yen crosses – USD/JPY, EUR/JPY and GBP/JPY -- fell more than a full cent from the highs earlier in the day, triggering fears about an earlier correction. Ultimately, the strong seasonal trend of yen weakness (and Nikkei strength) in December is a major risk and argues for buying a dip rather than betting on declines.

Data was light Tuesday but in the day ahead the market will be hyper-focused on the Fed with a series of tier-1 data points out in the next three days including ADP employment, ISM non-manufacturing and NFP.

Under the radar, the Japanese government will be releasing details of a $52 billion stimulus program designed to counteract April's sales tax hike. That may prove to be a larger factor in USD/JPY. The rumored program size is close to expectations but part of the market was hoping for a bigger splash, that could change if reports of an extra budget are true.

The Fed's Williams spoke with Reuters and, reading between the lines, he may have outlined a plan for QE tapering. He said the market should cap QE then end it over a period of months. He also advocated clarifying that unemployment falling to 6.5% doesn't mean rate hikes and cutting interest on excess reserves. That's a realistic roadmap.

USD/CAD was in focus Tuesday as it cleared the 2011 high but it failed to close above the mark, at 1.0658. Oil prices also posted an impressive reversal, nearing $97 from below $94 earlier in the day. A larger correction could be in order if the BOC doesn't fret about inflation or offer anything to the doves in Wednesday's rate decision.

The main event on the calendar is Australian GDP at 0030 GMT. The consensus is for a 0.7% q/q rise following a 0.6% quarterly rise in Q2.