Tokyo, Aug 31. USD/JPY is slightly easier with importer settlement demand into the Tokyo fix seen sated. EUR/JPY too has moved down after trading up to a high around the 150.60 level. It currently trades 150.35/40. USD/JPY is likely to range from here. The bias remains to the upside but Tokyo players look to have discounted the weak Japanese production data out earlier. London and US players have not and more
upside is seen after the London open. Offers remain to the upside and are likely to slow upward progress. Japanese exporters, in particular, have solid offers from the 117.40-50 level. Technical resistance is eyed at 117.30-35, the session high and ahead of 118.00, 117.88 the high on July 19. Support is seen solid from around the 117.00 level, 116.95 the low in Tokyo today. USD/JPY currently trades 117.21/23.

There is talk making the rounds this morning in Tokyo that Japanese institutional investors were buying USD/JPY early down towards the low of the session at 116.50-60. Names including Kampo and Norinchukin have been noted by dealers. Whether this is actually the case is a matter of debate. The fact does remain that Japanese institutional investors are back in on the bid in USD/JPY, alongside importers who still have some covering to do for month-end. Cross strength also looks to have helped and USD/JPY has traded up to as high as the 116.85/90 level. It has since steadied, trading 116.77/82. Topside resistance remains at 117.00-10, 117.01 the high overnight. More resistance is eyed at 117.25, the high in early Asian trading yesterday. Japanese exporters are seen done for the month and will likely be good sellers only on moves up to and above 117.40-50.

ASIA/EUROPE RECAP: Day 3 of PPI/CPI-induced US TSYS rally seen Thur in pretty decent overseas volume. Despite some profit taking in Tokyo, prices managed to press higher and gains picked up speed in London. extension trades seen in good size in both UST and Bunds. There was also Asian real money buying in 10s and Asian CB buying of 2s. On cross to US trade, Tsys are nicely higher with 5s and 10s leading. Oil also helping bonds as it fell below $71 bbl and lowest level since late June on: 1) cooler weather in parts of US; 2) OPEC lowered forecasts for demand; 3) US stockpiles above average. Global stocks moderately mixed. Gold is below $640. While some question the rally as they fear inflation is not dead and Fed is only pausing not at the end, others are taking the “better safe than sorry” attitude and moving back to neutral or getting long. Very good domestic and foreign buying has been noted since Fed pause on 8/8. Also it is clear mortgage servicers are grabbing for duration and any MBS/TSYS shorts have been badly squeezed. However, a real convexity/refi push is a long ways off. Daily calendar to follow.

US TSYS: Above average volume overnight speaks for itself in terms of flows. 5Y note continues to be best performer in 3-day rally that has been supported by heavy shortcovering and real US and foreign buying of USTs and MBS. MBS duration grabbing another factor. 5Y note has fallen in yield from 4.95% on Monday at the close to 4.77% in overseas trade this morning. Traders noted that the rally that began Tues with PPI would get another 10 bps lift if CPI was friendly. Indeed that happened, with 5Y moving from 4.87% Tues at the close to 4.77% this morning. In terms of flows today, some profit taking seen in Tokyo but otherwise it was good buying. Good size extension trades noted in both USTs and German bunds. Asian central banks bought 2s and there was also good buying of 10s out of Asia. Yesterday, Japanese and Asian accounts seen as good buyers in both Tsys and MBS. Today, get FHLB 3Y pricing for $4B.

SYDNEY Aug 17 - The US dollar was trading lower against the yen and euro following a tame US consumer inflation report and data indicating moderating economic growth, dealers said.

They said the US currency is expected to remain under pressure given that expectations for another Federal Reserve interest rate hike this year have been cut to 30% from 46% prior to the overnight data releases.

At 10:40 a.m. Sydney time, (0040 GMT), the US dollar was at Y115.75 against the yen, down from Y115.85 in late New York trade while the euro was at $1.2853, up from $1.2841.

The US dollar dropped overnight following a flat US CPI for July and other weaker-than-expected data releases, from Y116.35 on the yen to close near its low, while the euro jumped from $1.2770 prior to the data releases to $1.2865.

US headline CPI for July rose 0.4% which was in line with market expectations, but the annual rate slipped to 4.1% from 4.3% over the year to June.

Core CPI increased 0.2% which was also around the market consensus, lifting the annual core rate to 2.7% from 2.6% following four consecutive months of 0.3% increases.

“While there is little sign of alleviation in inflation, this on-consensus result is unlikely to sway the Federal Reserve from its on-hold stance,” Commonwealth Bank senior economist Michael Workman said.

Dealers said US housing data also weighed on the US dollar, with housing starts falling 2.1% to an annual rate of 1.795 mln over the year to July and building permits dropping 6.5% to 1.747 mln.

CBA’s Workman said other data providing further justification for the Federal Reserve’s on-hold stance were smaller than expected increases in both industrial production and capacity utilization in July.

Industrial production rose just 0.4% after a solid increase of 0.8% in June, while capacity utilization rose moderately to 82.4% from the downwardly revised 82.3% in June.

“The data suggest that the Federal Reserve can afford to wait and watch the data before judging whether further tightening is needed,” CBA’s Workman said.

“With economic activity data continuing to slow, the odds of further tightening are receding.”

NY traders are expecting price action to pivot around 116.00 in Tokyo trading tonight. USD/JPY is currently at 116.06/07, underpinned by JPY cross demand into the NY afternoon. Offers are tipped at 116.20 but most traders see gains extending towards the offers at 116.40 tonight. More offers loom at 116.75 and are taggered up to 117.00 with Japanese exporter offers for longer term hedge horizons from 117.00 to 117.50. On the downside, Japanese bids are tipped at 115.85 down to 115.70. More buying is tipped at 115.55 and 115.35/40. There are rumors of very large stops at 115.20.

Both USD/JPY and EUR/JPY retained a supportive tone, although both pairs were capped by sizeable offers. USD/JPY ran into some resistance overnight at 116.75 and struggled to reassert itself on the topside in the European session. Residual offers are reportedly from Japanese exporters around 116.75 and a large batch is noted at 116.80. Some stops are noted above but more offers are eyed up to 117.00, another level targeted by exporters and also where option positions are touted. The price action saw early movement towards to the downside on the back of value-today repatriation flows on the back of US Treasury coupon payments and CTA selling via EUR/JPY. USD/JPY was unable to move below 116.20 amid interbank demand ahead of bids from Japanese real money names and importers. In contrast, EUR/JPY struggled to move away from 148.25/30 after CTAs sold from the 148.55 area. Japanese investor demand via the JPY crosses continues to influence USD/JPY price and limited pullbacks in both GBP/JPY and EUR/JPY. Focus turns to US PPI and US TIC data. Headline PPI is expected to come in at +0.4% M/M, core at +0.2% M/M.

USD/JPY continues to move higher after the Tokyo fix, rising to the 116.65/70 level seen currently. The pair seems to want to go up. Some offers from Japanese exporters remain around the overnight high of 116.75 and especially at 116.80. However, dealers note some stops above this latter level. More offers are eyed above however, clumped especially around the 117.00 level. Stops are noted above here as well. Technical resistance above 117.00 is seen at 117.40, the high on July 25. Support below looks to be firming up at 116.25-30, 116.28 the low in New York overnight.

Tokyo, Aug 14. Power outages are being seen in certain parts of Tokyo, and JGB trading has been suspended as a result. The subways are not running but other vital systems look to be working, including trading in money market instruments