JPY Strengthens Overnight As USD Falls Back Underneath 81.00

• EURUSD rebounds from yesterdays low near 1.3105 to trade around 1.3155 in tight 20 pip Asian range overnight
• AUD falls sharply from 1.0325 level following release of weaker than expected Q1 CPI inflation data that comes in at half market expectations
• Gold lifts from yesterday’s lows around $1624 but overnight rally stalls ahead of $1640 as USD loses some ground overnight
• GBPUSD rallies back above 1.6120 in Asian trading but remains in tight range as quiet conditions abound ahead of the European opening
• JPY strengthens overnight as USD falls back underneath 81.00 and all Asian equity markets head lower again
• Very little data out of Europe or the UK today, focus will centre on US Consumer Confidence, New Home sales and Richmond Fed index all due out this afternoon
• Ratings agency Moody’s warns the Dutch government on its rating if budget issues not resolved.
• Talk of a sizeable move by BOJ at policy meeting on Friday to add some 5-10 trillion yen in additional QE

Good morning. Well quite what to make of yesterday’s markets is a tough one.

The sell-off in equities was really quite significant but that scale of panic and volatility simply wasn’t translated into the FX market even as the DAX sank by nearly 250 pips on the day at one stage yesterday afternoon there wasn’t a significant risk off trade in FX land.

The USDJPY never really traded underneath 81.00 all afternoon and if anything it actually traded higher.

EURJPY did slip back as the EURUSD fell through moving average support at 1.3121 and then at 1.3114, but the moves really weren’t significant.

The failure of the EURUSD to fall back through 1.3100 was key to me really as I said in yesterday’s update; a break back under that level would have flipped momentum.

I cannot really say who brought it back off the lows last night, but as the Dow rallied the intraday market was squeezed and we did the usual, ending the day in the middle of the range. The close for the EURUSD at 1.3156 was entirely inconclusive.

Technically the price is getting very congested now in this pair as we can see from the medium term daily moving averages. The 30 day is at 1.3185, the 50 day at 1.3205 and the 90 and 100 days at 1.3115 and 1.3118.

The 100 day is falling and the 90 day is rising. Well that spells convergence to me and we should get a break out before too long I assume?

Having said that, conversations I have had already on both sides of the pond this week would support the notion that there is a general feeling of apathy towards the currency as a lot of the players have had the appetite beaten out of them already this year.

You can blame one or two players for that; who seemingly want to take all from themselves and leave nothing for the next man.

Those players responsible would do well to remember that continuing in this fashion may not serve them well in the long run.

The AUD has fallen overnight following a weaker than expected Q1 CPI release which came in at +0.3% on the quarter against general expectations of a 0.6% increase. That news saw the AUD fall sharply from 1.0325 to 1.0255 almost instantly.

The price has rebounded after the European opening but that move looks more linked to JPY weakness and AUDJPY buying – more on the JPY side of the equation in a minute.

EURGBP did eventually fall through what was reportedly quite substantial buying interest at 0.8160. Once the level was broken follow through was however minimal on this as the price slipped to around 0.8150.

That’s probably because of the proximity of the very important UK Q1 GDP data due at 9.30am tomorrow.

The consensus is that the economy will evidence growth at 0.1% versus a contraction of 0.3% in the final 3 months of 2011.

Clearly a second quarter of negative growth will be really badly received in the short term but a better than expected number should see the currency push higher again.

As usual it will be important to see if there is any adjustment to the last figure- more on this tomorrow.

Asian equity markets have ended the day mostly lower again today as all those concerns raised yesterday are still live.

There’s no change in anything in Europe, the outcome of the French elections is still very uncertain, the Dutch government situation is still unresolved and Spain and the other peripherals are as they were.

The ratings agency Moody’s has warned the Dutch government regarding the potential implications for the country’s AAA rating if their budget issues are not resolved.

The failure of the Dutch government to agree on the necessary austerity in order to bring their budget back inside EU guidelines makes a such constraints a complete joke when one looks at the budget messes in the peripheral countries including Italy.

This whole European project is now an utter joke if the Netherlands are to fall fowl of Brussels on this issue.

There is little in the way of data today in Europe and the focus will be on the US consumer confidence, housing and Richmond fed data this afternoon.

Ahead of that we have debt auctions from Holland, Spain and Italy all of which could have a significant impact on the markets if the outcome, or take up, is substantially below expectations.

The JPY has weakened in early trade as the USD lifts from earlier levels around 80.85 to around 81.15 on talk of a sizeable move by the BOJ to add some 5-10 trillion JPY in additional QE when they decide on policy this Friday. That speculation has been fuelled by comments from BOJ officials this morning.

Equity markets are higher this morning, following yesterday’s rather nasty sell-off and that has helped the risk appetite across the board.

That is also helping the JPY weaken across the board and also helping to propel Gold higher. Wherever gold goes in the short term looks entirely linked to the risk dynamic.

There isn’t much more to add today. It is likely to be just as difficult and uncertain as it was yesterday, so apart from really short term trading dynamics the picture looks unfortunately just as inconclusive as it did yesterday.