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The Yen surged against the US Dollar late into Asian trading amid rumors of large-scale repatriation by Japanese exporters, setting off a wave of selling that weighed on the greenback against most of its major counterparts. German unemployment and Euro Zone inflation figures are on tap ahead.

Key Overnight Developments

• Yen Leads Majors Higher Against Dollar on Repatriation Rumor
• Australian New Home Sales Rise But Obstacles Remain, Says HIA

Critical Levels



The Euro and the British Pound rose gently higher in Asian trading, adding 0.3% apiece against the US Dollar. We remain short EURUSD at 1.4881 and short GBPUSD at 1.6648.


Asia Session Highlights



Currency markets saw quiet trading for much of the overnight session until rumors of large-scale repatriation by Japanese exporters pushed the Yen higher against the US Dollar, reverberating across the majors and weighing on the greenback against most of its top counterparts. The Japanese unit gained as much as 0.9%, leading USDJPY back below the 92.00 level. The broader Dollar Index, a gauge of the buck’s average value against six of the world’s most-traded currencies, declined 0.4% to trade at the lost level in over two weeks.

Australia’s Housing Industry Association (HIA) reported that New Home Sales grew 0.3% from the previous month in November. However, the property still market faces “a considerable number of obstacles” according to HIA chief economist Harley Dale. Indeed, mortgage rates have outpaced the gains in benchmark interest rates as the Reserve Bank of Australia started to tighten monetary policy in October while the government has reduced grants to first-time home buyers to A$7,000 from A$21,000.


Euro Session: What to Expect



German Unemployment figures are set to show that the Euro Zone’s largest economy shed 5,000 jobs in the December, marking the first increase since June. The unemployment rate is expected to remain unchanged from the previous month at 8.1%. However, analysts have steadily missed the mark on forecasting the outcome over the past five months, calling for joblessness to increase only to see it move in the opposite direction. The headline unemployment change figure has shown a strong inverse correlation with the forward-looking Expectations index of the IFO business confidence survey, which rose to an 11-month high in December to hint that a better-than-expected outcome is a very real possibility again. Perversely, persistently beating estimates may have desensitized traders, limiting the market-moving potential of an upside surprise.

A preliminary estimate of the Euro Zone Consumer Price Index is set to show that the annual pace of inflation accelerated to 0.9% in December, the fastest since February. An increase in German CPI on the back of rising energy prices over the same period is supportive of a higher outcome. A return to positive (if modest) price growth is welcome news for the European Central Bank, suggesting the currency bloc may be able to avoid a debilitating period of deflation without implementing additional monetary stimulus measures. That said, this should not prove to speed up the march towards raising benchmark interest rates as Jean-Claude Trichet and company struggle to reconcile competing needs of relatively better-off economies in Germany and France with far more damaged ones like those of Spain and Greece. Indeed, tightening monetary conditions now as several Euro Zone countries aim to sharply cut back government spending to rein in their deficits would severely widen the rift between rich and poor member states within the currency bloc, likely producing a harsh political response that could conceivably endanger the structural integrity of the single currency.