GBP Rightmove at 22 month high
ITL CPI slightly higher in final read
Bank of Russia diversifies into yen
Empire on tap in US
News that Central Bank of Russia is diversifying into yen, quickly sent both USD/JPY and EUR/JPY lower in early European trade tonight. While traders reported that initial order flow in the market was small, the announcement by the first deputy chairman of the central bank noted that Russia intends to ultimately raise its proportion of yen holdings to several percent of its total reserves. With Russia thanks to persistently high energy prices - compiling foreign exchange reserves at rate in excess of $20 Billion per month, tonights news is just one additional reason why the downtrodden yen may be finally ready to rally. Russian authorities are generally considered to be extremely astute and competent traders and tonights news clearly shows their recognition of the underlying value of the yen at current price levels.
Over the past several weeks while USD/JPY has hovered within striking distance of its multi year highs news flow from the land of the rising sun has been decidedly yen bullish. Some of the recent data points that should bolster the case for yen longs include the following:
1. Last Fridays surprising statement by BOJ Governor Fukui that the central bank will consider raising rates by 25bp before the year end.
2. Record yen short positioning readings in the latest IMM data from CME which suggest that the carry may have become too much of a one way trade, setting up the Johnny-come-lately speculative accounts for a possible nasty turn in the pair.
3. Upbeat readings from the latest Eco Watchers survey which over the past two years tended to be an excellent forecaster of near term yen direction.
That having been said, USD/JPY continues to be vulnerable to one final push higher with spec players still seeking to knock out massive amounts of barrier options at the 120 level. If tomorrows US PPI data surprises to the upside, fueling speculation that the Fed may renew its interest rate hikes campaign, the pair could indeed rally higher as carry trade flows will once again overwhelm all other factors of trade. If however, the recent greenback rally against the majors losses steam this week, the yen could become the primary beneficiary of the turn.
In US today the calendar brings only the Empire Manufacturing survey expected to slip slightly to 11.0 from 13.8 the month higher. While the Empire report measures only a small fraction of US economic activity, it will be interesting to see nevertheless if todays data confirms the recent upbeat claims by dollar bulls that US economic activity continues to maintain a healthy pace of growth as evidenced by upward revisions in employment data and relatively decent Retails Sales numbers last Friday. If however Empire readings fall further, they may confirm a deceleration in the US economy first signaled by the Philly Fed numbers last month.
