FX Mixed, Carry Trades Favored by Korman Tam

The greenback was mixed in the Thursday session, firming against the sterling and yen, but losing ground versus the euro and Aussie. Economic data released today was slightly better than expected but had little impact on the currency market.

The August trade deficit shrunk to $57.59 billion, better than both forecasts at $59.0 billion and the July reading of $59.25 billion. Import prices increased by 1.0% in September, while export prices edged up by 0.3% -- both largely in line with expectations. Meanwhile, weekly jobless claims improved to 308k, down from the previous week at 317k.

Market focus will shift to Friday’s US economic reports, consisting or retail sales, producer price index, business inventories and the University of Michigan consumer sentiment survey. Retail sales for September are forecasted to slip to 0.2% versus a 0.3% reading from the previous month, while the excluding automobiles figure is estimated to improve to 0.3% compared with a 0.4% decline in the prior month. September PPI is seen up 0.4%, versus a 1.4% decline from August, while core PPI is unchanged at 0.2%. The preliminary October University of Michigan consumer sentiment survey is forecasted to improve to 98.3, up from 97.9.
Yen Stumbles

With global equity bourses stabilizing, carry trades have returned to favor – pushing the yen to its lowest level since late July against the euro and Aussie at 167.61 and 106.62, respectively. Dollar/yen also broke out of its weeklong consolidation to hit a two-month high at 117.76.

The Bank of Japan, as largely expected, kept monetary policy unchanged when it announced its decision early Thursday morning with an 8-1 vote. Bank Governor Fukui attributed the BoJ’s unchanged stance to lingering nervousness in global financial markets, particularly stemming from the US housing debacle. Fukui said that although “conditions in the US and European markets have improved, they are still unstable”. Further, the BoJ maintained the same outlook from its September monthly report.

Japan’s August core machinery orders declined by more than forecasted -- falling by 7.7% versus calls for a 6.0% decline m/m and the annualized figure dropped by 2.6%. The August unadjusted current account surplus rose 42.1% y/y to 2.0810 trillion yen, less than the 2.1932 trillion yen expected. Meanwhile, the August trade surplus surged by 185.2% to 892.2 billion yen.

USDJPY holds steady near its 2-month highs around 117.60, with resistance starting at 117.75, followed by 118 and 118.40. Subsequent ceilings are eyed at 118.80, backed by 119 and 119.50. On the downside, support begins at 117.40, followed by 117 and 116.75. Additional floors will emerge at 116.40, backed by 116 and 115.50.