Talking Points:

  • Yen soars to 15-month high, Aussie drops amid risk aversion in Asian trade
  • Sentiment slump likely reflects returning 2016 FOMC interest rate hike bets
  • Pre-positioning for Yellen testimony may reverse overnight risk-off moves

The anti-risk Japanese Yen soared to a 15-month high while the sentiment-geared Australian and New Zealand Dollars declined as risk aversion carried over from Wall Street onto Asian stock exchanges. The MSCI Asia Pacific regional stock benchmark index is on pace to issue its largest daily decline in three weeks having dropped over 2 percent.

We pointed to the likelihood of risk aversion at the start of the year in our 2016 fundamental forecast. The Fed’s aggressive easing effort over the past seven years slashed returns on safer assets and encouraged a reach for yield outward along the risk spectrum. The start of the Fed’s tightening cycle has triggered portfolio adjustment flows reversing this dynamic.

Within this context, the risk-off push since the start of the trading week seems to reflect follow-through on the release of January’s US employment data. While payrolls numbers trailed forecasts, the unemployment rate unexpectedly declined and wage growth impressed on the upside.This seemed to rekindle Fed rate hike speculation (as we suspected ahead of the release).

Looking ahead, a quiet economic calendar in European and US trading hours is likely to allow sentiment trends to remain in the driver’s seat. S&P 500 futures are pointing lower, hinting that overnight trading patterns are set to continue.

Pre-positioning ahead of Wednesday’s much-anticipated Congressional testimony from Fed Chair Janet Yellen may trigger an intraday reversal however. Traders are unlikely to want to be over-extended on either side of the risk sentiment spectrum ahead of the commentary. A move toward neutral in the context of recent selling is likely to boost higher-yielding FX like the Aussie and Kiwi while punishing the Yen.

Are you following what FXCM traders are doing with the Japanese Yen? Find out here.

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

ANZ Truckometer Heavy (MoM) (JAN)

-4.3%

-

2.6%

22:30

AUD

Weekly Consumer Confidence Index (FEB 7)

111.4

-

111.2

23:00

NZD

QV House Prices (YoY) (JAN)

12.6%

-

14.2%

23:50

JPY

Money Stock M2 (YoY) (JAN)

3.2%

3.1%

3.0%

23:50

JPY

Money Stock M3 (YoY) (JAN)

2.5%

2.5%

2.5%

00:01

GBP

BRC Sales Like-For-Like (YoY) (JAN)

2.6%

0.3%

0.1%

00:30

AUD

NAB Business Conditions (JAN)

5

-

6

00:30

AUD

NAB Business Confidence (JAN)

2

-

2

06:00

JPY

Machine Tool Orders (YoY) (JAN P)

-

-25.7%

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

06:45

CHF

Unemployment Rate (JAN)

3.8%

3.7%

Medium

06:45

CHF

Unemployment Rate SA (JAN)

3.5%

3.4%

Medium

07:00

EUR

German Industrial Production (MoM) (DEC)

0.5%

-0.3%

Medium

07:00

EUR

German Industrial Production (YoY) (DEC)

-0.6%

0.1%

Medium

07:00

EUR

German Trade Balance (DEC)

20.0B

20.5B

Medium

07:00

EUR

German Current Account Balance (DEC)

26.7B

24.7B

Medium

07:00

EUR

German Exports (MoM) (DEC)

0.5%

0.5%

Low

07:00

EUR

German Imports (MoM) (DEC)

-0.5%

1.7%

Low

09:30

GBP

Visible Trade Balance (£/Mn) (DEC)

-10400

-10642

Medium

09:30

GBP

Trade Balance Non EU (£/Mn) (DEC)

-2500

-2450

Low

09:30

GBP

Trade Balance (DEC)

-3000

-3170

Medium

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.0907

1.1036

1.1115

1.1165

1.1244

1.1294

1.1423

GBP/USD

1.4054

1.4249

1.4341

1.4444

1.4536

1.4639

1.4834

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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