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USD, oil weigh on FTSE, JPY bid

The US dollar consolidates gains before the monthly labour data release. All G10 majors, except the Aussie, extended losses in Asia. The safe-haven yen and Swiss franc were the most offered G10 currencies (-0.23%) against the US dollar.

Equity markets remained quiet.

After the UK’s bank holiday on Monday, the FTSE opened the week downbeat. UK mining and energy stocks lead gains as the Brent flirts with the $50 mark, while WTI floats around the $47.

Rio Tinto (-2.98%), Glencore (-2.57%), BHP Billiton (-3.01%), BP (-1.06%)

In the dirt of major macroeconomic data, the stronger USD and the limited appetite in oil and commodities are expected to remain the major forces in the cross asset markets.

What’s the upside potential in USDJPY?

The yen remained offered for the second consecutive day in Japan. Higher US yields are supportive of the positive momentum building in the USDJPY since the FOMC Chair Janet Yellen hinted at a solid normalisation path for the US in her speech given at Jackson Hole symposium last Friday.

The USDJPY finally took a step on the upside and continues seducing bidders above the 102.00 level.

The domestic data also encouraged selling the yen against the US dollar and the euro in Tokyo. The overall household spending in Japan contracted by 0.5% year-on-year in July, versus -1.5% expected and -2.3% previously. Retail sales picked up 1.4% on month to July, versus 0.8% expected. The department store sales printed a positive performance, though slightly worse than expected.

Still, the macroeconomic picture in Japan remains very different from what the Bank of Japan (BoJ) aimed for three years ago, while introducing the Abenomics, the massive, three-arrow energy boost plan. Today, investors are expecting another massive stimulus package, worth $2 billion according to a recent Bloomberg survey. The new package would include a central bank funded government to lift the gross domestic product (GDP) via the government-spending component.

In theory, further stimulus should halt the yen’s appreciation. Yet in practice, the dynamics are somewhat different. Downside risks prevail should the Bank of Japan fail to meet the high market exigencies. In the short-term however, the 100/99.50 levels are set to provide a solid support in USDJPY trading.