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USDJPY Tumbles after Poor US Retail Sales, PPI Data

USDJPY Tumbles after Poor US Retail Sales, PPI Data

Christopher Vecchio, CFA, Senior Strategist

THE TAKEAWAY: US Advance Retail Sales (MAY) > -0.2% m/m from -0.2% m/m > JPY, GOLD BULLISH

THE TAKEAWAY: US Produce Price Index (MAY) > 0.7% y/y from 1.9%m/m > JPY, GOLD BULLISH

The rally by high beta and risk-correlated assets stalled in their pre-market rally following the disappointing Advance Retail Sales report and Produce Price Index for May released on Wednesday. The reports, released at 12:30 GMT, painted two distinct pictures with the same conclusion: the US economy is weakening. The first report showed that sales contracted by 0.2 percent last month, after contracting by a revised 0.2 percent in April. A large part of this decline can be attributed to falling gasoline prices, with a 2.2 percent decline coming in gasoline station sales. When discounting autos, then autos and gasoline, sales still contracted by 0.4 percent and 0.1 percent, respectively.

The weakness in oil prices wasn’t only evident in the Advance Retail Sales report for May, however. The Producer Price Index for May showed that prices contracted by 1.0 percent on a monthly-basis after contracting by 0.2 percent in April. According to a Bloomberg News survey, m/m PPI was expected to decline by 0.6 percent. On a yearly-basis, prices inflated by 0.7 percent from 1.9 percent in April, below the 1.2 percent forecast. Excluding food and energy prices (for the so-called “core” reading), prices were sticky; however, coming it at 2.7 percent y/y in line with the prior month’s reading.

USDJPY 1-minute Chart: June 13, 2012

USDJPY_Tumbles_after_Poor_US_Retail_Sales_PPI_Data_body_Picture_1.png, USDJPY Tumbles after Poor US Retail Sales, PPI Data

Charts Created using Marketscope – Prepared by Christopher Vecchio

Following the release, the USDJPY took a dive lower from 79.64 to 79.40, at the time this report was written. Considering the pair’s range for the past few hours – trading between 79.60 and 79.73 – the move lower was clearly a sign that market participants have put a greater weighting in the QE trade. To confirm this, one needs to look no further than Gold, which rallied from $1611.88/oz to as high as $1623.60/oz. The commodity currencies were lower as well, with the AUDJPY dropping from 79.39 to 79.13, at the time this report was written.

--- Written by Christopher Vecchio, Currency Analyst

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