Forex Market Update: Japan Intervenes To Stem The JPY's...

04.08.2011

Economic Data Highlights

US Jul. Challenger Job Cuts out at +59.4% y/y vs. 5.3% prior
US Jul. ADP Employment Change out at 114k vs. 100k expected and revised 145k prior
US Jul. ISM Non-manufacturing out at 52.7 vs. 53.5 expected and 53.3 prior
US Jun. Factory Orders out at -0.8% m/m, as expected vs. revised +0.6% prior
NZ Q2 Unemployment Rate out at 6.5%, as expected and unchanged from prior

THEMES TO WATCH - UPCOMING SESSION

Norway Unemployment Rate (0800)
GE Factory Orders (1000)
UK BOE Rate Announcement (1100)
EU ECB rate announcement (1145)US RBC Consumer Outlook Index (1200)
EU ECB's Trichet Press Conference (1230)
US Initial Jobless Claims (1230)
US Bloomberg Consumer Comfort (1345)

Market Comments

Hot on the heels of the Swiss National Bank's moves yesterday to counter the 'massively overvalued' CHF, Japanese authorities took the initiative on the JPY this morning with various bouts of solo intervention in USDJPY. Finance Minister Noda confirmed that the MOF intervened due to the JPY's moves being one-sided but did not disclose the size of the intervention, or which currency pairs. He added that he was 'convinced' that the BOJ would take appropriate action (note the BOJ announced it was ending its meeting today instead of tomorrow prompting suggestions that further easing measures may be announced to coincide with the intervention). This was confirmed when the BOJ announced its asset purchase programme would be expanded by ¥5 tln. Once above 78.0, intervention in USDJPY continued in a sporadic fashion throughout the rest of the morning, a slightly different approach to the 'big bang, throw everything you can at it' we have seen in the past and could prove more effective in the near-term.

Apart from the intervention there was no other news or data to influence markets, except for an in-line with expectations New Zealand unemployment rate. We did hear some comments from NZ Finance Minister English that the ministry does not see that any significant changes to monetary policy are needed at the moment though he acknowledged that the current high level of the NZD was hurting exporters.

Heading into Europe, we can also expect Norway's unemployment rate and German factory orders before we get around to the central bank meetings from the Bank of England and the European Central Bank. The BOE may have its hands tied with high inflation but the market may hope for more discussion on possible further quantitative easing measures. The ECB is expected to be a relatively quiet affair this time round though a U.K. Telegraph article did suggest that it would announce re-entering the Eurozone debt crisis by unveiling its intention to recommence its purchases of government debt. On the U.S. data calendar we have only weekly jobless claims and Bloomberg consumer comfort index ahead of tomorrow's non-farm payroll report.

Overnight it was the Swiss National Bank that attracted all the attention with a cut in official rates to 'as close to zero as possible', a massive expansion in liquidity and warnings of intervention. Combined, this all had the desired effect of knocking the CHF off its lofty perch with the EUR being one of the major beneficiaries. European services PMI was mixed with the U.K. number outshining the rest, and a strong Eurozone retail sales number (+0.9% m/m versus +0.5% expected and revised -1.3% last) helping the EUR along.

In contrast, the U.S. non-manufacturing ISM dipped to 52.7 from 53.3 last and Challenger job cuts showed increased layoffs by large companies, up almost 60% y/y in July, but the ADP employment change showed a better-than-forecast 114k increase. However, markets will likely take this data with a pinch of salt given its hefty miss compared to last month's non-farm payroll report. Wall St endured a volatile session but managed to break the recent seven-day string of losses with gains of 0.25% for the DJIA, 0.5% for the S&P and 0.89% for the Nasdaq.

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