Dollar in the Driver’s Seat, Japan Data Next

The US dollar reasserted itself Thursday as it cruised to gains against the yen and pound while beating up on commodity FX. The euro kept pace and was the top performer while CHF lagged. A full slate of tier 1 Japanese data is due next.. After the last of our 2 AUDJPY shorts hit its final target of 91.40, totalling +230 pips, we issue 1 trade on USDJPY with 3 charts. Full detail found in the latest Premium Insights.

The Fed didn't send any particularly strong signals yesterday but the US dollar proved that the status quo continues to be enough. Initial jobless claims fell to 265K compared to 300K expected and even though it was probably skewed by a US holiday it added to the USD bid.

USD/JPY pushed toward the topside of the recent range, hitting 118.48 in a half-cent rise that was aided by a better mood in stocks. The euro may have benefitted from some long-term position squaring. The German inflation data was very soft and it couldn't prompt more selling. It's getting tougher to see a near-term catalyst for EUR/USD weakness and that may have been the catalyst for profit taking, maybe even more so in EUR/GBP shorts.

The real losers on the day were the commodity currencies. An early dip in oil was all USD/CAD needed to break a big figure for the second day as it cruised through 1.26 and then ripped to 1.2670.

The Australian dollar has completely cast aside the CPI data. Terry McCrann, the RBA watcher at the Herald-Sun wrote that a cut is 'almost certain' on Tuesday and that added to the drop but McCrann's record is dismal and traders may be too focused on central bank surprises elsewhere.

The focus will be on the yen in the hours ahead as the monthly data highlights hit with jobs and CPI due at 2330 GMT, followed by industrial production 20 minutes later. By far, the Dec CPI report is the most important and it's expected up 2.1% y/y ex-food and energy. Tokyo CPI for Jan is expected up 1.8% ex-food and energy. A miss might not cause a large reaction but a soft reading could start up the BOJ conversation once again, especially chatter about negative rates.