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Yen Rises on Repatriation Flows After Japanese Earthquake, Risk FX Tumbles

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Top Stories

  • Japanese earthquake send yen higher
  • UK PPI bit cooler than expected
  • Nikkei -1.72% Europe lower by -.82%
  • Oil down to $102/bbl
  • Gold at $1415/oz.

Overnight Eco

  • NZD FPI m/m 0.1%
  • EUR German Final CPI m/m 0.5%
  • EUR German WPI m/m 1.4% vs. 1.0%
  • GBP PPI Input m/m 1.1% vs. 1.4%
  • GBP PPI Output m/m 0.5% vs. 0.7%

Event Risk on Tap

  • CAD Employment Change expected at 31.3K
  • CAD Unemployment Rate (JAN) expected at 7.7%
  • USD Core Retail Sales m/m expected at 0.7%
  • USD Retail Sales m/m expected at 0.6%
  • USD Prelim UoM Consumer Sentiment expected at 77.3
  • USD Prelim UoM Inflation Expectations
  • USD Business Inventories m/m expected at 0.6%

Price Action

  • USD/JPY trades to 82.60 in aftermath of earthquake as repatriation flows dominate
  • AUD/USD slips below 1.000 as risk aversion picks up
  • GBP/USD cooler PPI weighs 1.600 comes into view
  • EUR/USD dives to 1.3750 on fears of inaction at EU summit

@import url(/css/cuteeditor.css); USD/JPY broke to fresh session lows in the aftermath of the reaction to the Japanese earthquake as currency traders speculated that repatriation flows will favor the yen in the near term. Meanwhile risk FX reversed all of its relief rally gains with EUR/USD falling below 1.3800 while cable broke under the key psychological level of 1.6000 as disappointing data and fears of inaction from the EU summit sent risk tumbling across the board.

With little economic data on the calendar today, trading was dominated by market reaction to the massive earthquake that hit Japan around 2PM local time. The earthquake which registered 8.9 on the Richter scale was the largest ever recorded in Japan and was approximately 100 magnitude larger than the earthquake that destroyed Haiti. Although the initial damage from the earthquake was not catastrophic it is too early to tell what the ultimate cost of recovery will be given the aftershocks and the possible after effects of the tsunami generated in its wake. A seven meter tsunami already swept through the Japanese countryside and tsunami warnings have been issued for Hawaii, the Pacific coast of US and Central and Latin America.

USD/JPY initially spiked higher to 83.30 in the immediate aftermath of the quake as currency markets were concerned about the economic and monetary impact of the event. However, despite fears that this natural disaster will expand fiscal and monetary spending as Japanese government tries recover from the damage, some market analysts speculated that the earthquake would trigger a wave of repatriation of capital which would be yen positive in the near term. In the wake of the Kyoto earthquake in 1995 USD/JPY sold off 20 big figures from 100 to 79 although no one expects such a massive move this time.

Meanwhile EUR/USD reversed all of its post earthquake relief gains and dropped nearly 100 points off its highs on concerns that today's EZ finance ministers summit in Brussels will not yield any structural solution to the issue of periphery sovereign debt and fears that Portugal may be forced to ask for a bailout from IMF after Germany reportedly refused to release EFSF funds to the country. Earlier in the week Moody's downgrades of both Greece and Spain have triggered fresh fears regarding the solvency of the credit in the EZ periphery economies and this theme continues to weigh on the EUR/USD as the week comes to a close. If the summit does not result in any concrete action on the part of EZ fiscal authorities the euro may come under further pressure as the day proceeds with 1.3700 coming into view.

In UK the PPI data printed a bit cooler than expected with input PPI coming in at 1.1% versus 1.4% eyed while output PPI rose 0.5% versus 0.7% eyed. This was the first softer than expected reading of wholesale inflation in more than six months and suggest that price pressures may be moderating. The news send cable below the key 1.6000 figure as hopes for a near term rate hike from the BoE started to fade. The BoE Governor Meryn King has been arguing for quite some time that inflation pressures will begin to ease as the year progresses and if today's report is the start of this trend the downward move in cable is likely to continue as rate hike expectations are pushed out to H2 of 2011.

In North America today the economic focus will be on US Retail Sales with market looking for a rebound to 0.7% from 0.3% the month prior. The report however may be overshadowed by the developing events from Japan and any news out of the EU summit. If risk aversion flows accelerate as we move into the weekend both the dollar and the yen will likely extend their rallies.

FX Upcoming

Currency GMT EST Release Expected Prior
CAD 12:00 7:00 Employment Change 31.3K 69.2K
CAD 12:00 7:00 Unemployment Rate 7.7% 7.8%
USD 13:30 8:30 Core Retail Sales m/m 0.7% 0.3%
USD 13:30 8:30 Retail Sales m/m 0.6% 0.3%
USD 14:55 9:55 Prelim UoM Consumer Sentiment 77.3 77.5
USD 14:55 9:55 Prelim UoM Inflation Expectations 3.4%
USD 15:00 10:00 Business Inventories m/m 0.6% 0.8%

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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