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USDJPY Plummets As Dollar Index Continues To Slide

USDJPY Plummets As Dollar Index Continues To Slide

Kevin Jin,

THE TAKEAWAY: US University of Michigan Consumer Confidence comes in better than expected > USD is broadly weaker > USDJPY plummets to ¥98.20 despite encouraging inflation figures

Investor fears are back as global markets trade lower. Various measures of volatility indicate uneasiness heading into an eventful slew of upcoming central bank decisions. The implied volatility in the market, measured by the CBOE Volatility Index (VIX) is higher by +4.16% to 13.51 at the time of writing. The AUDJPY, traditionally one of the most popular carry trades and often cited as the FX risk barometer, is lower by -1.14% at the time of writing.

There are various explanations for why markets are lower today despite some positive data out of the US and Japan. In the US, U. of Michigan Consumer Confidence (JUL F) came in at 85.1, above 84.0 Bloomberg News survey expectations. In Japan, the Consumer Price Index (JUN) came in at +0.2% y/y, above the +0.1% Bloomberg News survey expectations. One plausible explanation is the suggestion that the Fed will change its forward guidance via an article by WSJ reporter Jon Hilsenrath.

Equity markets are meaningfully lower with the Nikkei taking a plunge: S&P -0.54%; Euro Stoxx +0.14%; FTSE -0.47%; Nikkei -2.97%; Hang Seng +0.31% at the time of writing.

In commodities, crude oil is weaker and base metals continue to get hammered: WTI -0.79%; Brent -0.65%; LME Copper -0.57%; COMEX Copper -2.57%; Shanghai Copper -0.32% at the time of writing.

Amidst all these declines, bond markets are relatively still. The yields on most of the major 10YR government bonds are flat in trading today.

AUDUSD 15-minute Chart: July 26, 2013

USDJPY_Plummets_As_Dollar_Index_Continues_To_Slide_body_Picture_4.png, USDJPY Plummets As Dollar Index Continues To Slide

Charts Created using Marketscopeprepared by Kevin Jin

The AUDUSD is lower by -0.08% at the time of writing. The pair is attempted to run up to $0.9300 during London Open but was unable to sustain this run and has since traded lower.

GBPUSD 15-minute Chart: July 26, 2013

USDJPY_Plummets_As_Dollar_Index_Continues_To_Slide_body_Picture_3.png, USDJPY Plummets As Dollar Index Continues To Slide

Charts Created using Marketscopeprepared by Kevin Jin

The GBPUSD is lower by -0.16% at the time of writing. The cable clearly moved lower near New York Open and is slightly rebounding into London Close.

EURUSD 15-minute Chart: July 26, 2013

USDJPY_Plummets_As_Dollar_Index_Continues_To_Slide_body_Picture_2.png, USDJPY Plummets As Dollar Index Continues To Slide

Charts Created using Marketscopeprepared by Kevin Jin

The EURUSD is marginally lower by -0.12% at the time of writing. After a failed run at $1.3300 near London Open, the pair continued to decline thereafter.

USDJPY 15-minute Chart: July 26, 2013

USDJPY_Plummets_As_Dollar_Index_Continues_To_Slide_body_Picture_1.png, USDJPY Plummets As Dollar Index Continues To Slide

Charts Created using Marketscopeprepared by Kevin Jin

The USDJPY is the most volatile pair today, momentarily dipping below ¥98.00 late in the London session. The pair is net -1.06% lower, weighing the Dollar Index lower. One explanation of USDJPY weakness despite good CPI numbers is that the positive inflation shows "Abenomics" is working, dampening the need for further BoJ easing.

--- Written by Kevin Jin, DailyFX Research

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