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Why the data points to further USD/JPY downside

Contrast the jobs and retail sales reports

The surprisingly strong non-farm payrolls report last Friday and surprisingly weak retail sales and PPI numbers today make for an interesting contrast in USD/JPY.

The first thing that jumps out is the differing magnitude of the moves. To me, the jobs report was bigger news. The beat was healthy and wages grew faster than expected. Yet, the initial NFP move was smaller.

On retail sales, the miss was about the same magnitude but it's largely explained by weaker motor vehicle sales. Even then, manufacturers reported a 6.4% m/m jump in sales so either there was a heavy skew towards fleet sales (non-retail) or prices were heavily discounted.

In the control group, which excludes autos, gas and building supplies, sales were flat compared to 0.3% expected. That's a genuine disappointment but it comes after impressive sequential m/m growth of 0.5%, 0.4% and 1.1%.

Reactions more important than news

To simplify, the dollar rose less on very good news than it dropped on moderately bad news.

You could make the argument that PPI weighed as well and there might be something there. Normally it's a volatile series that's largely ignored but there's a heightened focus on inflation at the moment because it's the key part of the Fed mandate that's falling short.

Another caveat could be positioning but it doesn't quite add up. The market is generally long dollars but it's even longer yen. If anything that would argue for the opposite of what happened. That said, I'm not sure I trust the CFTC positioning data to give an accurate view of USD/JPY. There are some massive real money trades and positions that long USD/JPY (as opposed to futures, which are the opposite and more likely hedges for the real-money positions).

Technical Analysis

Finally, the tecnicals look negative. USD/JPY bounces from 100 have failed and it's only fear of intervention and the big figure keeping the pair afloat. If the August low of 100.66 breaks, I can't see 100 holding again.

Look for a fall to 95.00 in the days ahead.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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