[FXJourney]

Yesterday’s proceedings provided a perfect microcosm of the various forces at work in markets and in particular for FX markets. US data yesterday was generally positive (retail sales and empire manufacturing above consensus expectations, although PPI was slightly higher than expected). Cash for clunkers was no doubt a boost to headline sales, but even the ‘control’ portion of ex-autos and ex-natural gas was at +0.6% mom vs expectations for a flat print. This may prove to be supportive for risk sentiment. The market reaction was initially muted but equities trended higher through the day, while yields inched slightly higher. Crude also saw significant gains. This was accompanied by Dollar weakening as seen clearly by the moves higher in EUR/$, and in-line with the correlations that markets have come to expect.

USD/JPY initially moved higher in line with the US rates sell-off. However, USD/JPY reversed course during the day to end at a lower level than where it was before the US data releases, as the initial rate moves petered out, despite equities continuing to make headway throughout the session.

The implication here is that the Yen seems to be taking its cue from rate movements rather than risk.

On the calendar today are the Euroland CPI final release for August and another heavy data data for the US. Market expects no change to the flash Euroland CPI estimates. In the US, we get industrial production, Q2 current account, CPI and July TICs data. The TICs and current account data will give the latest update on the US BBOP situation.