FX Update: USD Bulls Need Strong Retail Sales Print

 | Apr 14, 2015 04:21AM ET

The JPY rally picked up pace overnight after comments from an advisor to prime minister Shinzo Abe yesterday suggesting 120 in USDJPY is too weak a level and that 105 is more in line with purchasing power parity.

USDJPY is still within the tight range, while EURJPY was pushed to new cycle lows and other JPY crosses look heavy. One can’t help but wonder if these comments are a direct response to the criticism from the recent US Treasury currency report that criticised Japan for its over-reliance on monetary policy to achieve its objectives.

New Zealand house price inflation accelerated in March, a development that will garner increasing political and central bank attention and coming at an awkward time, as the Reserve Bank of New Zealand would prefer to do nothing on the rate front, given the kiwi’s extremely elevated levels. An RBNZ governor is out speaking tonight.

The US Retail Sales release for March is a very important one, after a string of weak readings, as the market will be looking at this number for whether we’ll find support for the theory that the weak patch of data in the US in recent months has been due to extreme winter weather along the most heavily populated areas of the country.

In any case, expectations for the ex autos and gas number are running at a rather elevated +0.7% month-on-month. Considering that we only have one Fed rate hike priced in through the end of this year, it won’t take much of an upside surprise today to get the market to price in a tighter Fed.

EURUSD

The run lower within the range here in EURUSD has been almost entirely without a bounce, and if we get a strong US Retail Sales report today one wonders if the next level is parity immediately or if we start to make slower progress and start to move in “quarters” rather than “fives” as has been the case since 1.4000.

In that case, 1.0250 may be the first objective beyond 1.0500. One has to imagine, meanwhile, that parity is very psychologically “sticky” if it eventually comes into play.