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USD/JPY Turns Radioactive As BOJ Stays Put

USD/JPY Turns Radioactive As BOJ Stays Put

Market Drivers for June 16, 2016

  • USD/JPY drops 2 big figures on BOJ
  • AU Employment mixed
  • Nikkei -1.53% DAX -0.79%
  • Oil $47/bbl
  • Gold $1310/oz.

Europe and AsiaAUD: Employment 17.9K vs. 15KBOJ: Stays patGBP: Retail Sales 0.9% vs. 0.2%EUR: CPI 0.4% vs. 0.3%

North AmericaGBP: Rate Hike, minutes 7:00USD: Weekly jobless claims 8:30USD: CPI 8:30

USD/JPY turned radioactive in Asian session trade today dropping nearly 2 big figures after the BOJ left its QE policy unchanged and Governor Kuroda expressed little immediate concern about the currency’s strength.

The BOJ left its QE policy at 80-trillion yen and maintained the negative rate stance with votes of 8-1 and 7-2 respectively. In assessing the state of the economy Mr. Kuroda struck a mildly positive tone, noting that Japan is continuing to recover moderately on trend. The central bank however did note that inflation will remain below 0% for the time being.

Although most market participants did not expect any additional stimulus from BOJ, the announcement nevertheless triggered a massive selloff on disappointment. Coming on the heels of yesterday’s generally dovish Fed statement, the pair became a prime target for shorts, especially because its was trading so close to the yearly low of 105.50.

With both 105.00 and 104.00 broken, USD/JPY has sustained massive technical damage and could remain volatile until the Brexit vote next week, at the very least. If Brexit does happen, the resulting chaos in capital markets could easily push the pair below parity as risk aversion flows explode. For now however, it has found support underneath the 104.00 figure and could consolidate there for the next few days.

Elsewhere, in Australia the labor data came in better than expected at 17.9K vs. 15K but the headline readings were offset by the sharp downward revisions in the month prior and the decline in labor force participation to 64.8% from 64.9% eyed. The Aussie drifted off the highs, giving up the .7400 figure as AUD/JPY sales weighed on the pair as well.

In the UK, Retail Sales popped 0.9% versus 0.2% forecast, printing yet another upside surprise this week. As we noted yesterday:

“The risk of the UK leaving the EU still remains significant and the latest swirl of polls suggests the vote is too close to call, but should the UK economy survive the Brexit vote, the underlying fundamentals appear to have been relatively unscathed by the political trauma and cable could pop substantially on a Remain win.”

In North American trade the calendar carries US CPI and weekly jobs data, neither of which will be market moving. The focus will therefore be on whether US traders will want to test USD/JPY lows once again. As a result, FX markets will likely take their cues from equities as the day proceeds.

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