Surprisingly weak Chinese trade data sparked fears about slow growth in Asia, causing the USDJPY to fall sharply all the way through the 100 level ahead of today’s much-anticipated FOMC meeting minutes.
The USDJPY dropped through the key 100.00 level early in today’s European session after Chinese trade data revealed further weakness in external demand, sparking investor concerns about a slowdown in Asian growth.
Chinese trade numbers printed at 27.1 billion versus 27.8 billion expected, but the underlying numbers were far worse than the headline suggested. Chinese exports in June dropped by -3.1% versus an expected increase of 3.7%. This was the first time in 17 months that the export component declined, indicating both a weaker demand picture as well as more accurate representation of trade flows after the Chinese government cracked down on false invoice generation, which inflated economic activity throughout the past several months.
Demand for imports was weak as well, falling by -0.7% versus a forecast for a 6.0% rise. The decline was partly due to softer demand for commodities since industrial production slowed. Comments from Chinese customs officials indicated that the outlook for Q3 trade remains grim and demand shows minimal signs of picking up.
The news had little impact on the Australian dollar (AUD), however, which had sold off so much over the previous few months that much of the data was already factored into the price.
See related: 3 Main Focal Points for AUD/USD Traders
USD/JPY Loses Big Early Wednesday
Unlike AUDUSD, USDJPY took a big hit, falling more than 100 points from its highs as investors grew increasingly nervous about the prospects for growth in the Asia-Pacific region.
Today, the pair may get a boost from the release of the Federal Open Market Committee (FOMC) meeting minutes, as traders look for more hawkish posture from the Federal Reserve board. However, given the overhang from the overnight news, the bounce in USDJPY could be relatively contained.
Furthermore, if the FOMC minutes surprise the market and offer no discussion of possible tapering of quantitative easing (QE) measures, then the downside momentum in the pair could accelerate and USDJPY could test the 99.00 figure as the day progresses.
The Key EUR/USD Event for Today
Meanwhile, in Europe, the economic calendar was very quiet, with only German CPI data on the docket. Comments from European Central Bank (ECB) governing council member Christian Noyer reassured the markets that the central bank stands ready to support sovereign debt in the region, causing the EURUSD to rebound above the 1.2800 level.
Today's North American session is likely to be very quiet until the release of the FOMC minutes at 2:00 pm ET. If the minutes prove to be slightly dovish, the EURUSD rebound could extend, with 1.2850 and possibly even 1.2900 in view as the day unfolds.
By Boris Schlossberg of BK Asset Management