THE TAKEAWAY: USD Consumer Price Index (DEC) > +1.7% versus +1.8% expected, from +1.8% (y/y) > USD CPI ex Food & Energy (DEC) > +1.9% as expected, unch (y/y) > USD Net Long-term TIC Flows (NOV) > $52.3B versus $25.0B expected, from -$1.0B (revised from $1.3B) > USD Industrial Production (DEC) > +0.3% as expected, from +1.0% (revised from +1.1%) (m/m) > USDJPY NEUTRAL

Today’s batch of US data has proved rather unremarkable, as modest performance overall has left the USDJPY, one of the more volatile currency pairs in recent weeks, unchanged.

Data released by the Labor Department showed that inflation held steady in December, with the headline Consumer Price Index coming in at +1.7% on a yearly-basis, while the core reading came in at +1.9% y/y. Overall, inflation pressure in 2012 was softer than it was in 2011, when prices rose by +3.0% y/y. With inflation nowhere near the Federal Reserve’s “Evans Rule” threshold of +2.5% y/y, there is little reason to believe that there has been a material shift in the US economy that would force an alteration of current policy.

USDJPY 1-minute Chart: January 16, 2013

Charts Created using Marketscope – Prepared by Christopher Vecchio

The other two important data releases out this morning both came in at strong levels, with Industrial Production in December rising back to its highest overall level since mid-2008. Needless to say, when considering the decline in manufacturing/industrial jobs in the United States, the overall strength of the industry can be attributed to improved worker productivity and advances in technology. These remain structural issues that the US economy will have to overcome in order to see a prominent rebound.

While both the CPI and Industrial Production prints for December were interesting, the TIC Flows report for November is by far the most important print of the three. Data released by the Treasury Department today showed that foreigners snapped up USD-denominated assets by double the anticipated amount in November, as investors braced for what was a tumultuous fiscal cliff/slope showdown. It should be noted that three of the last four times TIC Flows increased by more than $50 billion from the prior month, it was ahead of significant US Dollar strength and equity market weakness: June to July 2012 (from $8.168B to $68.201B); October to November 2011 (from $14.308B to $67.969B); and July to August 2011 (from $1.985B to $57.926B).

--- Written by Christopher Vecchio, Currency Analyst

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