USDJPY Plunges As Dollar Drops To 11 Month Lows, Commodities Rise

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Following yesterday's Yen surge in the aftermath of the disappointing BOJ announcement, the pain for USDJPY long continued, with the key carry pair tumbling as low as 106, the lowest level since October 2014 before stabilizing around 107, and is now headed for its biggest weekly gain since 2008, which in turn has pushed the US dollar to to its lowest close in almost a year as signs of slowing growth in the U.S. dimmed prospects for a Federal Reserve interest-rate increase. As a result, global stocks fell and commodities extended gains in their best month since 2010.

The yen strengthened against all 16 major peers for the second day in a row, climbing as much as 1.1 percent to 106.91 a dollar, the strongest level since October 2014. It surged 4.3 percent this week as the Bank of Japan defied economists’ expectations that stimulus would be stepped up.

The sliding dollar is proving beneficial for raw materials, helping lift gold and silver to 15-month highs. Crude oil has jumped 21 percent this month to more than $46 a barrel in New York. European equities trimmed their biggest monthly advance since November.

As Bloomberg writes, the dollar’s third straight monthly drop and the prospects for the Fed moving gradually on interest rates are spurring the outlook for inflation, with the 10-year U.S. break-even rate at the highest since July. Reports today on consumer confidence and personal spending will provide clues on the trajectory of the world’s largest economy after data on Thursday showed the slowest pace of expansion in two years.

Looking at regional markets, Asia traded mixed amid holiday thinned trade and a cautious tone following Wall St. losses, where an Apple sell-off and weak US GDP dampened sentiment. However, ASX 200 (+0.4%) edged higher underpinned by commodity strength in which WTI broke above USD 46/bbl.

Elsewhere, the Shanghai Comp (-0.3%) was subdued after further discouraging earnings in which PetroChina posted its first ever quarterly loss and ICBC reported lacklustre growth as well as an increase in NPL's, while the PBoC also conducted a net CNY 290b1n drain. Finally, Japanese markets were shut for Showa Day public holiday.

In Europe, despite the upside in the energy complex today, sentiment is firmly dampened after the soft close in the US yesterday and the risk off trading seen overnight. Although Asia saw thin trade due to the Japanese holiday, the upside seen in both JPY and precious metals illustrated the uncertainty felt across asset classes, with this filtering through to Europe.

Equities have traded in the red throughout the morning, with Euro Stoxx lower by 1.2%, although with the downside in equities failing to filter through to any significant price action in fixed income. Bunds are flat on the day and continue to trade in the tight range between 162.50 and 162.25.

In Fx, it has been a mixed session in FX, but one which again is to the detriment of the USD as the index is pressed down to fresh 6 month+ lows on the back of another down-leg in USD/JPY. Losses in London saw 107.00 taken out, but ahead of 106.50, exotic protective bids are helping contain the sell-off, albeit temporarily so as yet. EUR/USD has been propelled higher accordingly, having adopted a strong bid tone in recent sessions. Earlier gains extended through the pre 1.1400 top seen over the ECB press conference last week, and despite running into strong offers above here, the pullback is contained ahead of 1.1350, with better than expected Q1 GDP in the Euro zone now aiding the bid. This has also helped EUR/GBP recover a little, with Cable now only managing to match the early Feb high at 1.4667 before retracing back through 1.4600. Bids in the mid 1.4550's supporting for now. Commodities still recovering amid the backdrop of recent jitters in equity markets. Oil continues to power north to help maintain USD/CAD pressure on 1.2500. Strong bids coming in ahead of this but sellers keen ahead of 1.2550.

Looking at regional markets, Asia traded mixed amid holiday thinned trade and a cautious tone following Wall St. losses, where an Apple sell-off and weak US GDP dampened sentiment. However, ASX 200 (+0.4%) edged higher underpinned by commodity strength in which WTI broke above USD 46/bbl.

Elsewhere, the Shanghai Comp (-0.3%) was subdued after further discouraging earnings in which PetroChina posted its first ever quarterly loss and ICBC reported lacklustre growth as well as an increase in NPL's, while the PBoC also conducted a net CNY 290b1n drain. Finally, Japanese markets were shut for Showa Day public holiday.