Yen Selloff Continues as Crude Oil Extends Rally

Market's focus is turning back to yen selling today as USD/JPY breaches 80 psychological level. BoJ's ultra easing monetary policy is factor that contributes recent weakness in the Japanese yen and is there to stay. Another yen selling reason emerged earlier this week after Japan posted record trade deficit in January, with steep fall in exports to China. Meanwhile, as an oil import country and an export led economy, Japan is facing additional pressure from recent rally in oil prices. After, last year's natural disaster in Japan, only 5 out of 54 nuclear reactors are staying in operation and thus increasing the demand for energy imports. This, coupled by strength in oil prices, where WTI crude oil is trading above 106 for the moment, will likely worsen the trade balance of the country. WTI looks likely to test 114/115 level in near term based on current momentum and that could help take USD/JPY towards 85 level.

Elsewhere markets are pretty steady as European majors are generally stuck in range against dollar. Dollar index is hovering around 79 level for the moment. DOW breached 13000 level briefly overnight but failed to sustain gain above there. CRB commodity index, on the other hand, was impressively strong overnight and jumped 1.6% to close at 322.45. We'd like to point out that firstly, even though stocks and crude oil are both strong, such strength is not reflected in Canadian dollar as USD/CAD is holding above 0.99 level so far. Indeed, some weakness is see in AUD/USD which extended recent pullback in spite of strength in commodities.

On the data front, HSBC china manufacturing PMI improved to 49.7 in February but stayed below 50. Eurozone PMIs will be a main focus in European session and are expected to show mild improvements. BoE will release meeting minutes but given that the quarterly inflation report was already released last week, today's minutes might trigger little reaction to markets only. From US, main focus is in existing home sales which is expected to rise slightly to 4.65m in January.