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Contributors USD/JPY Falls Through 100.00 as Chinese Data Weighs

By Boris Schlossberg

Market Drivers July 10, 2013
Chinese trade data weak as exports fall -3.1%
USD/JPY breaks below 100.00
Nikkei -0.39% Europe -0.76%
Oil $104.74/bbl
Gold $1252/oz.

Europe and Asia:
AUD Westpac Consumer Confidence -0.1% vs. 4.7%
JPY Tertiary Industry Index 1.2% vs. 1.7%
EUR German CPI 0.1% vs. 0.1%

North America:
USD Fed Releases Minutes Jun 18-19 14:00
USD Bernanke Speaks on Economic Policy in Boston 16:10

USD/JPY dropped through the key 100.00 level in early European session today after Chinese trade data revealed further weakness in external demand sparking investor concerns of slowdown in Asian growth. Chinese Trade numbers printed at 27.1 B versus 27.8 B eyed, but the underlying numbers were far worse than the headline suggested.

Chinese exports in June dropped by -3.1% versus an expected increase of 3.7%. This was the first time in 17 months that the export component declined indicating both a weaker demand picture as well as more accurate representation of trade flows after the Chinese government cracked down on falls invoice generation that inflated economic activity in the past several months.

Demand for imports was weak as well as they fell by -0.7% versus a forecast of a rise of 6.0%. The decline was partly due to softer demand for commodities as industrial production slowed. Comments from China customs indicated that outlook for Q3 remains grim as demand shows few signs of picking up.

The news had little impact on Aussie which had sold off so much over the previous few months that much of the data was already discounted in the price. However, USD/JPY took a big hit losing more that 100 points off its highs as investors grew increasingly nervous about the prospects for growth in the region.

Today the pair may get a boost from the release of the FOMC minutes, as traders look for more hawkish posture from the Fed board. However, given the overhang from the overnight news the bounce in USD/JPY could be relatively contained. Furthermore, if the minutes surprise the market and offer no discussion of possible QE tapering, then the downside momentum in the pair could accelerate and USD/JPY could test the 99.00 figure as the day proceeds.

Meanwhile in Europe, the calendar was very quiet, with only German CPI on the docket. Comments from ECB’s Noyer that the central bank stands ready to support the sovereign debt in the region appear to have calmed the markets somewhat and the pair rebounded above the 1.2800 level.

Today’s trade in North American session is likely to be very quiet until the FOMC minutes release and if they prove to be slightly dovish the EUR/USD rebound could extend with 1.2850 and possibly even 1.2900 in view as the day proceeds.

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