It was deja-vu all over again in the NY session as risk appetites continued to rule the day. US equities extended into yet another high for the year, with the S&P adding more than 1.5% to close at the 1068.76 high. US inflation data was a touch stronger than anticipated with headline CPI printing 0.4% in August after no change the prior month. The annual rate edged up to -1.5% from -2.1% and we expect this trend to continue as the impact of last year's elevated energy prices wears off. Indeed, we would not be surprised to see headline consumer prices decidedly positive on a year-on-year basis within the next couple of months.
The higher inflation saw bond yields push upward, with the 10-year jumping about 11 basis points from its low to close by 3.47%. This in turn helped support the yen crosses in a big way. USD/JPY scurried up towards a 91.37 NY high post inflation data â€ but would eventually take a spill to a 90.93 close. EUR/JPY meanwhile rocketed to a 134.03 high after opening at 132.63 in NY. We expect the strong correlation between higher US yields and higher JPY-crosses to remain intact near-term. The ''risk on'' trade saw EUR/USD extend to fresh 2009 highs as well. The pair opened the session at 1.4675 and put in a peak at 1.4737 â€ taking out the December 2008 spike high in the process. Daily trendline support lurks at 1.4667 and this will be a key level to watch overnight.
Looking ahead to the Asia session, we have New Zealand business PMI and the Japanese tertiary industry index. The Kiwi number is more top-tier and a significant improvement from last month's 49.7 read should see the pair make a try above the 0.7150/55 highs. Be on the lookout for potential intervention comments from Japanese officials as they have been quite vocal of late.
Upcoming Economic Data Releases (Asia Session) prior expected
9/16/2009 22:30 GMT NZ Business NZ PMI AUG 49.7 - -
9/17/2009 23:50 GMT JN Tertiary Industry Index (MoM) JUL 0.10% 0.50%
9/17/2009 1:30 GMT AU RBA Foreign Exchange Transactions AUG 705M - -
9/17/2009 JN BOJ Target Rate 17-Sep 0.10% 0.10%