US Data Disappointment Boosts Yen

Yen strength to start the year continued as USD/JPY fell to the lowest of the year. The Japanese currency was the top performer while the Canadian dollar lagged. Australian trade balance is the highlight in the hours ahead.

A disappointing US ISM non-manufacturing survey led to a broad round of risk appetite that cut down yen crosses. The survey slid to 53.0 from 54.6 expected but more tellingly the new orders component fell into contractionary territory for the first time since 2009. An open question about the US economy was whether growth was generated by unsustainable inventory accumulation and this is only one report but it's worrisome.

Ahead of the numbers, USD/JPY was trading in the 104.80 range but it began a rapid fall afterwards, hitting a 2014 low of 103.90. The commodity currencies also fell hard against the yen while GBP/JPY and EUR/JPY were able to maintain the lows from Asian trading. Those two are the high flyers against the yen and their resilience – especially GBP/JPY after the weak services PMI – is a positive signal.  

Speaking of signals, the bullish reversals on the yen charts from Friday were all but wiped out on today's moves. Strength in the yen crosses remains a top theme in 2014 but the timing is now less clear. January tends to be a weaker month for yen crosses but the Feb-April period is bullish.

Another technical picture that grew cloudier was EUR/USD. On Friday, it cracked below several support levels including the 55dma and it continued lower to 1.3571 in Asia but the resilient euro rebounded again and closed above those markers. The ECB decision on Thursday looms.

Early in US trading the market was abuzz with talk about a fat finger in gold prices after a near-instant $30 fall to $1213. It was likely a fat finger but it triggered huge volumes of trading. Gold eventually recovered the drop but it undermined what had been a solid gain in the metal and prices ended slightly lower on the day at $1238.

The technical breakdown in oil prices also continued as WTI fell to a 5-week low despite OPEC production numbers falling to the lowest since May 2011.

The Asia-Pacific calendar is light today with Australian trade balance at 0030 GMT expected to show a $300m deficit for November.