Forex: Yen Selling May Accelerate as Focus Turns to US ISM Report

The Japanese Yen may face increasing selling pressure if US ISM manufacturing data tops expectations, boosting risk sentiment across financial markets.

Talking Points

Yen Drops on Japanese Deflation Deepens, US ISM Data May Amplify Pressure
British Pound Sinks as PMI Data Disappoints, Stoking BOE Stimulus Expectations

The Japanese Yen edged lower in Asian trade after January’s Consumer Price Indexfigures showed deeper deflation than economists expected, with the headline year-on-year measure showing a drop of 0.3 percent. The outcome reinforced hopes for a more aggressive stimulus push from the Bank of Japan after vocally dovish Asian Development Bank President Haruhiko Kuroda was formally nominated to take over as Governor yesterday. The Nikkei 225 benchmark stock index advanced, reinforcing downward pressure on the safety-linked currency.

Looking ahead, all eyes are on February’s US ISM Manufacturing gauge. Consensus forecasts point to print at 52.5 compared with 53.1 in the prior month, marking a slowdown in factory-sector activity. US economic releases have conspicuously improved relative to expectations since the beginning of last month (according to data from Citigroup). A similar result this time around may help to relieve fears about the onset of “sequester” government spending cuts due to trigger today and threatening to undermine the recovery. This will probably bode well for risk appetite, sinking carry-funding currencies like the US Dollar and Yen against their top counterparts. USDJPY itself seems likely to rise given the greenback’s slight yield advantage.

The British Pound is facing heavy selling pressure in early European trade in the wake of a disappointing Manufacturing PMI release. February’s report showed factory-sector activity unexpectedly contracted at the fastest pace in four months. Forecasters were penciling in a narrow acceleration in growth before the data crossed the wires. The outcome bolstered expectations of a dovish turn at the Bank of England, with Sterling sinking alongside UK 2-year bond yields. We continue to hold short GBPUSD.

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Terms of Trade Index (QoQ) (4Q)

-1.3%

1.4%

-3.2%

22:30

AUD

AiG Performance of Manufacturing Index (FEB)

45.6

–

40.2

23:00

AUD

RPData-Rismark House PX Actual (FEB)

0.3%

–

1.2%

23:30

JPY

National CPI (YoY) (JAN)

-0.3%

-0.2%

-0.1%

23:30

JPY

National CPI Ex-Fresh Food (YoY) (JAN)

-0.2%

-0.2%

-0.2%

23:30

JPY

National CPI Ex Food, Energy (YoY) (JAN)

-0.7%

-0.7%

-0.6%

23:30

JPY

Tokyo CPI (YoY) (FEB)

-0.9%

-0.6%

-0.5% (R+)

23:30

JPY

Tokyo CPI Ex-Fresh Food (YoY) (FEB)

-0.6%

-0.5%

-0.5%

23:30

JPY

Tokyo CPI Ex Food, Energy (YoY) (FEB)

-0.6%

-1.0%

-0.9%

23:30

JPY

Jobless Rate (JAN)

4.2%

4.2%

4.3% (R-)

23:30

JPY

Job-To-Applicant Ratio (JAN)

0.85

0.83

0.83 (R+)

23:30

JPY

Household Spending (YoY) (JAN)

2.4%

0.4%

-0.7%

23:50

JPY

Capital Spending (4Q)

-8.7%

-7.2%

2.2%

23:50

JPY

Capital Spending excl Software (4Q)

-7.2%

-6.5%

2.4%

23:50

JPY

Loans & Discounts Corp (YoY) (JAN)

1.34%

–

1.00%

1:00

CNY

Manufacturing PMI (FEB)

50.1

50.5

50.4

1:45

CNY

HSBC Manufacturing PMI (FEB)

50.4

50.6

52.3

5:00

JPY

Vehicle Sales (YoY) (FEB)

-12.2%

–

-12.9%

5:30

AUD

RBA Commodity Price Index (FEB)

91.1

–

88.0 (R-)

5:30

AUD

RBA Commodity Index SDR (YoY) (FEB)

-7.2%

–

-8.9% (R-)

Euro Session:

GMT

CCY

EVENT

EXP/ACT

PREV

IMPACT

7:00

EUR

German Retail Sales (MoM) (JAN)

3.1% (A)

-2.1% (R-)

Medium

7:00

EUR

German Retail Sales (YoY) (JAN)

2.4% (A)

-3.7% (R+)

Medium

7:00

GBP

Nationwide House Prices s.a. (MoM) (FEB)

0.2% (A)

0.5%

Medium

7:00

GBP

Nationwide House Prices n.s.a. (YoY) (FEB)

0.0% (A)

0.0%

Medium

8:30

CHF

PMI Manufacturing (FEB)

50.8 (A)

52.5

Medium

8:45

EUR

Italian PMI Manufacturing (FEB)

45.8 (A)

47.8

Low

8:50

EUR

French PMI Manufacturing (FEB F)

43.9 (A)

43.6

Low

8:55

EUR

German PMI Manufacturing (FEB F)

50.3 (A)

50.1

Medium

9:00

EUR

Euro-Zone PMI Manufacturing (FEB F)

47.9 (A)

47.8

Medium

9:00

EUR

Italian Unemployment Rate s.a. (4Q)

11.2% (A)

10.6%

Low

9:00

EUR

Italian Unemployment Rate s.a. (JAN P)

11.7% (A)

11.2%

Low

9:30

GBP

PMI Manufacturing (FEB)

47.9 (A)

50.5 (R-)

Medium

9:30

GBP

Net Consumer Credit (JAN)

0.4B (A)

0.9B (R+)

Low

9:30

GBP

Net Lending Sec. on Dwellings (JAN)

0.1B (A)

0.9B (R-)

Low

9:30

GBP

Mortgage Approvals (JAN)

54.7K (A)

55.6K (R-)

Medium

9:30

GBP

M4 Money Supply (MoM) (JAN)

0.9% (A)

0.7%

Low

9:30

GBP

M4 Money Supply (YoY) (JAN)

-0.8% (A)

-1.0%

Low

9:30

GBP

M4 Ex IOFCs 3M Annualised (JAN)

5.6% (A)

3.9% (R+)

Low

10:00

EUR

Euro-Zone CPI Estimate (YoY) (FEB)

1.8% (A)

2.0%

High

10:00

EUR

Euro-Zone Unemployment Rate (JAN)

11.9% (A)

11.8% (R-)

Medium

11:00

EUR

ECB Announces 3-Year LTRO Repayment

–

–

High

11:00

EUR

Italian Annual GDP (2012)

-2.4% (A)

0.4%

Medium

11:00

EUR

Italian Deficit to GDP (2012)

3.0% (A)

3.9%

Medium

Critical Levels:

CCY

SUPPORT

RESISTANCE

EURUSD

1.3072

1.3177

GBPUSD

1.5097

1.5204

— Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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