Yen Drop May Continue, Euro Likely to Overlook CPI Data

TALKING POINTS – YEN, STOCKS, EURO, CPI, AUSTRALIAN DOLLAR

• Japanese Yen may decline further as risk appetite continues to recover
• Euro unlikely to find lasting direction cues in regional inflation uptick
• Aussie Dollar leads commodity FX lower after soft local, Chinese data

The sentiment-geared Australian, Canadian and New Zealand Dollars backtracked in Asia Pacific trade having outperformed against the backdrop of recovering risk appetite in the prior session. The Aussie suffered outsized losses after local CPI and Chinese PMI data disappointed. The currency fell with Australian bond yields, signaling the outcomes drove a dovish shift in RBA policy bets.

EURO MAY IGNORE CPI DATA, JAPANESE YEN AT RISK

Looking ahead, the Eurozone CPI report seems unlikely to be any more impactful for the Euro than analogous German figures yesterday. The combination of accelerating prices and weakening economic growth seems broadly negative for the single currency – tying the ECB’s hands for the foreseeable future – but policy autopilot through year-end has probably dulled sensitivity to incoming data flow.

Meanwhile, bellwether S&P 500 futures are pointing higher ahead of the opening bell on Wall Street, hinting that another risk-on session may be in the cards. That could bode ill for the Japanese Yen, which suffered its largest drop in two weeks yesterday. The pickup in sentiment is unlikely to be more than a fleeting retracement however as a plethora of macro-level headwinds continue to menace the markets.

See our forecasts for currencies, commodities and equities to learn what will drive prices in Q4!

ASIA PACIFIC TRADING SESSION

EUROPEAN TRADING SESSION

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

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