Euro Consolidates; JPY Pairs Close Yesterday's Gap

Pressure on the BOJ to increase after LDP landslide victory; new easing from BOJ; Eurozone trade surplus declined. Market turns to Empire state manufacturing; TIC data and a number of speeches.

The JPY moved sharply lower at the beginning of Asia after Shinzo Abe's LDP won the election on Sunday in a landslide. The new LDP/NKP coalition will have two thirds majority which will increase the pressure on the BOJ to be more aggressive in its fight against the strong currency and deflation. USDJPY jumped to 84.40s and EURJPY soared to 9 month high near 111.20. However, later in Asia and throughout London trading, JPY rose and the gap on many JPY pairs was closed.

The BOJ meets on Wednesday night/Thursday morning. While a new easing program could be revealed, it seems more likely that it will be announced on the next meeting on January 21^st after the new government is formed.

The sole item on the European data calendar was Eurozone trade surplus that declined in October to EUR 7.9 bln from previous 11.3 bln.

The US session begins at 8:30 am ET with Empire state manufacturing that is expected to improve to -0.7 in December from previous -5.2 followed by net TIC flows that are anticipated higher in October at USD 24.3 bln from prior USD 3.3 bln.

Canadian foreign securities purchases are due at 8:30 am and they are seen lower in October at CAD 9.85 bln from previous 13.92 bln.

Markets will then focus on a number of speeches. The ECB president Draghi will begin his testimony before the economic committee in Brussels at 9:30 am; the FED governor Jeremy Stein will speak about dollar funding in Frankfurt at 11:00 am and the FOMC member Jeffrey Lacker will participate in a discussion at the economic conference in Charlotte beginning at 1:00 pm.

Patrik Urban