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Chandler: Yen Bulls Looking to Test Dollar Lows

The US reported a larger than expected trade deficit for Oct of $57.2 billion after $56.6 billion deficit in Sept. Import prices fell 6.7 percent in Nov after a 5.4 percent decline in October. Weekly initial jobless cliams jumped to 573,000 from a revised 515,000 the previous week, warning of further sharp deterioration in the labor market.

Exports fell to their lowest level in seven months and the contribution of net exports to US GDP is likely to diminish. After eliminating the changes in prices, the real trade deficit, which is what is used in GDP estimates, surged to $46.4 billion form $42 billion in September.

If the November and December data do not improve markedly, the risk is that the net export function is a drag on GDP rather than a contributor of 1.1 percent as it was in Q3. For the record, the trade deficit with China increase to a record $28 billion.

There is nothing good in today's data. The dollar was already suffering across-the-board losses. Hourly momentum indicators are extended for the euro, suggesting that the market is unlikely to have the strength to take out the Oct. 30 high near $1.3292. Meanwhile the yen bulls are looking to test the dollar low set on Oct 24 near JPY90.93.

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Marc Chandler is the global head of currency strategy for Brown Brothers Harriman. He has been analyzing, writing and talking about the foreign exchange market for more than 20 years. He is a regular guest on CNBC and his essays have been published in numerous economic and business publications. He previously served as the chief currency strategist for HSBC Bank USA and Mellon Bank.