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Talking Points

• Japanese Yen: Yen takes out 100
• Australian Dollar: Employment remains robust
• Euro: Targeting 1.5600 as the dollar selling continues
• Pound: Gunning for 2.0400
• US Dollar: Retail Sales on tap

For the first time since 1995 yen was quoted in double instead of triple digits tonight, as USDJPY slipped below the 100 barrier hitting a low of 99.74 in early European trade. Euro meanwhile set another all time high breaking through the 1.5600 figure to trade at 1.5625 as anti-dollar sentiment ran rampant through the currency market

On a night when the economic calendar has been barren trade flows were dominated by continued concerns about the US economy and the Fed’s inability to solve the myriad financial problems facing capital markets. Risk aversion was the key story of the day as equity markets from Tokyo to Shanghai as well as London and Frankfurt all recorded triple digit losses. With currency traders clearly losing faith in Fed’s latest attempt to stabilize the credit markets, the greenback was pummeled throughout the night as sellers pushed it lower in a near continuous one way price action.

With the buck attracting few private buyers, rumors of an official interest out of Tokyo began to circulate on dealing desks, but so far the BoJ has not made any attempt to prop up the dollar. As we noted yesterday, ‘The US market, while still important to Japanese commercial interests is no longer the only source Japanese export growth and as such USDJPY exchange rate matter far less to Japanese policymakers than they did a few years ago.’

Thus any talk of BOJ intervention is likely to remain nothing more than idle speculation for the time being. However, buck’s chronic weakness clearly cannot continue for much longer with G-7 policy makers beginning to worry about the prospect of a runaway market away from the dollar that could create massive instability in the global financial system. Up to now any official policy initiates to retard dollar’s decline have been relatively tepid but if the unit sees no relief in sight central banks may consider joint intervention into order to cool speculative sentiment and create some semblance of rebalancing in the FX market.

In US today, event calendar carries Retail Sales, and given the volatility of overnight trade the report may not have any impact on price action. However, if the number does print better than forecast, it may provide some relief to the persistent drumbeat of dollar selling, indicating that the US consumer has not yet gone into a full scale hibernation mode

DailyFX

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