Over the night the currency pairs where mixed with markets fluctuating between risk appetite and risk aversion sentiment. The Euro slowly trucked to 1.29, the Yen put in a temporary top at 85.00, Pound slipped to 1.56, Swissy remains around 1.04 threshold, while the commodity pairs seen a robust uptrend.
The Yen established a temporary top at 85.00 against the greenback. The overwhelming rally in the Yen has not been sitting well with the government officials. On the upcoming Monday, Prime Minister Naoto Kan and BOJ Governor Masaaki Shirakawa are scheduled to meet to discuss the monetary actions. One of the topics will be whether or not an intervention from the government will be prudent to stabilize the ever increasing Yen. The rise in Yen has become counterproductive for the economy as GDP is flirting with falling in a negative territory in the second half of 2010. The government officials are scared that a break above a pivotal 85.00 threshold can act as catalysis to a move towards 80.00. Corporate profits would be devastated and exports which once led the economy out of the recession could take a drastic hit, undermining the growth and proliferating deflation. Nonetheless, physical intervention is not yet likely. However, the Japanese authorities will more likely be kin to expand the Quantitative Easing program of ¥20 Trillion to a six-month span from previous three-month span, putting an artificial pressure on the Yen.
Meanwhile, the British economy finally seen an escalating inflation taking a breath as Core CPI fell to a more comfortable reading of 2.6%. With the inflation moderating to a more comfortable level and the growth prospects being timid at best, the probability of interest rates rising in near term future are becoming less likely. BOE Governor Mervyn King will not hike interest rate, to descending view of Andrew Sentence. In his explanatory letter, Mervin King stated “Upward pressures on inflation from past rises in VAT and oil prices and the depreciation of sterling were masking the downward pressure from the spare capacity in the economy.”Nonetheless, market participants should keep in mind that the QE program can be expanded at any junction in order to stimulate the economy, putting pressure on the Pound.
The Euro negated weak economic data in Germany and Euro-zone to advance to 1.29. European Current Account figures slipped by 4.6 Billion versus 3.6 Billion eyed. German Economic Sentiment dropped to 14.0 from 21.2 prior, while Euro-zone’s Economic Sentiment rose to 15.6 from 10.7. The figures seem to be misleading as German figures and Euro-zone’s figures tend to move in junction. However, the big catalysis to a strong action in the Euro was a solid bond action of Irish and Spanish bonds. With sovereign debt issues still in the back of the minds of investors, positive bond auction remains one of the drivers for the Euro. Irish bond auction (997% debt-to-GDP ratio) came in with demand three times that of offering.
In the United States, the Producer Price figures came in roughly in-line with the expectations. While Housing Starts came below the expectations. With the Housing Sector being way behind the projected growth, the economy might feel the double dip downturn in the sector. Housing Starts dropped to a pace of 546,000 versus 560,000 anticipated. Building Permits also dropped to 565,000 versus 580,000 eyed. Housing Sector represents roughly 10 to 15 percent of the economy and another slowdown of the sector could play negatively in the growth prospects. Meanwhile, Producer Price Figures rose for the first time in four month prompted by increasing prices of raw materials.
Disclosure: Scalping EUR/USD