The Japanese Yen and the Aussie rose while the US Dollar declined amid liquidation of consensus trades across financial markets. More of the same is likely ahead.

Talking Points

Yen, Aussie Dollar Rise as Profit-Taking on Established Trends Returns in Asia
US Dollar at Risk as Status Quo US Economic Data Fails to Quell Liquidation

The liquidation push seen at the start of the trading week returned in overnight trade. The MSCI Asia Pacific regional stock index plunged 2 percent, led lower by dramatic plunge in the Nikkei 225. Japan’s equity benchmark sank as much 5.4 percent.

Not surprisingly, the Japanese Yen outperformed, adding as much as 0.5 percent against its G10 FX counterparts. As we discussed before, we see this dynamic reflective of profit-taking in the absence of new catalysts to propel policy speculation until the effectiveness of “Abenomics” can be credibly assessed.

The corrective mood seems to stretch beyond Japan however. Indeed, familiar trading patterns appear to be giving way across the major asset spectrum, with the single unifying theme being an unwinding of consensus trends.

Within this context, it seems reasonable to see the US Dollar broadly lower considering the greenback has been the best-performing currency since the start of the year. The brisk recovery of the Australian Dollar – a move seemingly puzzling against a backdrop of risk aversion – likewise makes sense in such an environment.

Looking ahead, a relatively quiet economic calendar in European session hours is likely to see traders looking ahead to the US calendar. Pending Home Sales are expected to rise 1.5 percent for a second consecutive month, the second revision of first-quarter GDP is seen confirming the annualized growth rate at 2.5 percent, and Initial Jobless Claims are forecast to hold at 340k for a second week.

Absent major deviations, these don’t seem like the kind of figures that threaten to derail established momentum. Meanwhile S&P 500 futures are pointing lower following yesterday’s cautious support break, warning the liquidation dynamic is likely to carry forward as Wall Street comes online.

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