Intraday Market Thoughts

USD/JPY Breaks Higher, RBA Up Next

by Adam Button
Jun 1, 2015 23:45

The market proved that it's hungry for good US dollar news once again as it rallied hard on positive news and had only a shallow dip on negative news. The dollar was the top performer on the day while the loonie lagged. The RBA decision is due up next. Ashraf's EURAUD Premium long was +100 pips in the green and is now +85 pips in the money so far.

News is the best way to judge the enthusiasm of a market. Given two pieces of news -- one good, the other equally bad – the underlying bias of a market is often revealed. An example arguably appeared on Monday. First, the PCE report was soft with core inflation rising 1.2% compared to 1.3% expected and spending on the soft side. That led to a 20-30 pip decline in the US dollar.

Ninety minutes later, the ISM manufacturing report was slightly stronger at 52.8 compared to 52.0 expected and construction spending data was +2.2% compared to +0.7% with positive revisions. That led to a complete reversal of the earlier losses and 60 pip US dollar rally.

The example isn't perfect and there are never truly two pieces of economic news that are equal but it's instructive. Especially in the case of USD/JPY as the pair hovered near 124.14, which was the 2007 high and hadn't definitively broken.

The market could have gone either way but surged higher and closed at 124.78, in the first bona fide close above that important level. It's a sign that the market is hungry for US dollars, especially against the yen. We saw that kind of enthusiasm in the CFTC report as yen shorts jumped. If the Fed tips its hat toward rate hikes, we'll get another level of that enthusiasm.

But in the short-term, the focus is on the free falling Australian dollar. It's down in 11 of the past 13 sessions and the RBA is up at 0430 GMT. There is no serious talk of a rate cut so the focus will be on the bias. Most traders think the RBA is in a wait-and-see mode after the latest decision but Stevens would relish the opportunity to knock AUD down another level and through the April low of 0.7553.

USD/JPY Breaks Higher, RBA Up Next - Ssl (Chart 1)

Act Exp Prev GMT
ISM Prices Paid (MAY)
49.5 42.5 40.5 Jun 01 14:00
Construction Spending (APR) (m/m)
2.2% 0.7% 0.5% Jun 01 14:00

Latest IMTs