BOJ deflation fight, loosened the Policy hold

JPY

Yen was further down today, as pairs were focused on the JAL’s expected bankruptcy announcement (0800GMT). The Dollar continued it’s gain as Forex investors are rallying their speculation that the company will file for bankruptcy resulting in more data proving that the Japanese economy is continuing to fall and with the Bank of Japan’s recent announcement that they will fight deflation, results in further loose monetary policy. But with the US waking from its recent holiday, investors might be slow in their trading activity today

CAD/JPY – 64 pips (87.96-88.58); AUD/JPY – 95 pips (83.27-84.22);
USD/JPY – 46 pips (90.61-91.05); GBP/JPY – 137 pips (147.51-148.88)

GBP

The UK Consumer Price Index Report for December is due this morning (0930GMT). This is an important indicator for the emerging inflation trends and further monetary policy. Inflation pressures have been rising because of the rising commodity prices, sterling weakness to name a few. For example, in December, Core Producer output prices rose by 0.7% - the biggest monthly gain since May 2008. These emerging pressures, together with the possibility that some retailers could raise prices ahead of the VAT increase on 1 January, raise the likelihood that inflation rose further last month.

GBP/USD – 128 pips (1.6249-1.6377); EUR/GBP – 52 pips (0.8780-0.8832)
GBP/CAD – 94 pips (1.6719-1.6813); GBP/JPY – 137 pips (147.51-148.88)

CAD

The Bank of Canada Interest rate (1400 GMT) should show this old benchmark rate to remain at its record low today of 0.25% and repeat the pledge to leave it unchanged through June as an appreciating currency threatens to hamper the economic recovery.
“Any suggestion they will raise rates before the U.S. would probably drive up the currency, and we’ve already had concern from the bank that the very high dollar would derail the recovery,” said Pedro Antunes, director of economic forecasting at the Conference Board of Canada in Ottawa. “They will be hesitant to make any changes” today, he said.

USD/CAD – 66 pips (1.0246-1.0312); EUR/CAD – 63 pips (1.4737-1.4800);
AUD/CAD – 64 pips (0.9452-0.9516)

PR: wait... I: wait... L: wait... LD: wait... I: wait... wait... Rank: wait... Traffic: wait... Price: wait... C: wait...

Dawdling Currency pairs at the market

AUD

Over night, the AUD returned to its early momentum and rallied upwards as the Australian's unemployment data was released, adding three times more jobs than forecasted. The unemployment rate fell 0.1% to 5.5% from November the Australian Bureau of Statistics said Thursday morning GMT.

As one of the world’s still expanding economy, the Australians are generating more jobs than expected and as China is demanding more from its neighbors in means of raw materials; new investments and more jobs are continuing. With this, the ozzie is continuing to be strong against all the major currencies in the Forex market.

At 06:52 GMT, The Rate Range

AUD/USD – 115 pips (0.9215-0.9230); EUR/AUD – 131 pips (1.5623-1.5754)
GBP/USD – 168 pips (1.7496-1.7664); AUD/JPY – 129 pips (84.11-85.40)

EUR

At 12:45pm GMT, The European Central Bank's Governing Council meets for the first time this year and their non-decision on rates will be published. Expectations that the 1.00% rate will continue today and for the next several months. ‘Perhaps’ this will change later on but unlikely at the moment. Last week, the Bank of England retained its rates at 0.50%.

The meeting tied in to President Trichet’s ECB Press Conference will also discuss the implications of European weaknesses in the weaker Euro-Zones such as Greece.

The ECB published a working paper in December that suggested it was unlikely for a member state to leave or be forced out of the monetary union. This could be more important than the actual Rate announcement.

Yesterday’s Lows & High

EUR/USD – 123 pips (1.4456-1.4579); EUR/GBP – 73 pips (0.8892-0.8965)
EUR/JPY – 170 pips (131.51-133.21); EUR/NZD – 23 pips (1.9595-1.9618)

USD

At 13:30 GMT, the U.S. Unemployment Claims are expected at 438k. This is even more important in today’s session due to last Fridays un-forecasted 85k decline in non-farm payroll raised the concern that the economy is not on target for a recovery and that improvement in the labor market may have slowed if not reversed!

The lack of new job creation will have other repercussions to the US recovery as it will encourage the US to boost job growth even further which would be included in a new stimulus plan; linked to the increased US budget deficit.

Yesterday’s Lows & High

USD/JPY – 65 pips (90.90-91.55); GBP/USD – 170 pips (1.6135-1.6305)
USD/CAD – 122 pips (1.0288-1.0410); GBP/CHF – 82pips (1.0136-1.0217)

Market analysis

Euro pushing to new all-time, trade-weighted highs on geopolitics, possible end-of-year effects. Pound continues to struggle for support.

Another week of thin trading likely with the mid-week holiday. Short term moves may be poor predictor of the action coming in the New Year.

Market Comment by Finexo.com:

On Friday, UsdJpy was 0.42% higher at 90.80. EurUsd was 0.18% lower at 1.4025 after trading as high as 1.4119. EurJpy rose 0.64% to 127.43. EurGbp also rose to a fresh high at 0.9618 or +1.18%. UsdChf was 0.35% lower at 1.0701. GbpUsd dropped 0.85% to 1.4618.



Last week, EurUsd rose 0.8% to 1.4025. EurJpy rose 2.5% to 127.43. UsdJpy was 1.62% higher at 90.80. UsdChf dropped 3.04% to 1.0701 and GbpUsd went 2.08% lower at 1.4618.



Government data on Friday showed Japan's industrial production dived a record 8.1% while annual core consumer inflation slowed sharply, to 1% in November, underscoring fears the world's second-largest economy could sink back into deflation next year. Bank of Japan policy board member Hidetoshi Kamezaki said on Thursday that the bank should consider ways to influence longer-term interest rates and corporate debt products if more easing steps are needed. The Bank of Japan 2 weeks ago lowered interest rates close to zero, mirroring steps by the US Federal Reserve, and moved to pump funds into the market to ease a corporate credit crunch.

My View on EURGBP

The EURGBP has just hit a fresh all-time high, reaching .9680. This pair is quickly approaching parity behind expectations that the EUROZONE will keep rates above UK rates along with a grim economic outlook for the UK. Time will tell if the weak GBP will continue into the New Year.

EUR/JPY ANALYSIS

MAJOR HEADLINES – PREVIOUS SESSION
* Japan Q3 Housing Loans rose 4.2% YoY
* Japan Oct. Department Sales fell -6.8% YoY vs. -4.7% in Sep.

Chart: EURJPY



This is one of the more potent trades in an environment of easing interest rates and falling equities (in other words, broad risk aversion). The pair seems to have become stuck in range lately, but it feels like we are nearing a decision point in which we either see a strong rally through the 21-day moving average that further neutralizes the chart in the short term and extends the expectations for further range trading, or a sharp sell-off through the rising line of consolidation that could set up new lows for the pair. We prefer the latter scenario, but would like to see a drop through the 120.00 area and the line first.

Click to read full analysis

Finexo Market Review

JPY crosses recovered sharply as Asian equities fought back from new lows and on intervention risk.

Are short term highs in the USD and JPY behind us? Trichet signals rate ease next week from ECB. US Fed likely to cut 50 bps tomorrow.

MAJOR HEADLINES – PREVIOUS SESSION

• US Sep. New Home Sales rose to 464K vs. 450K expected and 452K in Aug.
• Japan Sep. Retail Trade fell -0.4% YoY vs. 0.0% expected
• Australia Q3 NAB Business Confidence fell to -7 vs. -8 in Q2
• Germany Nov. GfK Consumer Confidence rose to 1.9 vs. 1.5 expected and 1.8 in Oct.

Finexo Market Comment:

The weakness in emerging markets is feeding into pronounced weakness and confidence in the export-driven Germany economy and has been a factor in the weak EUR of late. This and declining inflation threats finally had Trichet out yesterday signaling that the ECB will lower rates next week - with a 50 bp cut likely both then and possibly also in December. German 2-year rates have plummeted from over 4.50% in July to about 2.60% yesterday and appear to be on their way to the 2.00% lows from the post tech-bubble lows. But not only are German exports threatened by the emerging market crisis. European banks are also very much on the hook, having been the chief lenders to emerging markets in recent years - and that's another way we can connect EUR weakness with EM weakness. For the EUR to consolidate, we will also need to begin to see more stabilization/liquidity in the EM currencies and markets. There are a few signs of this out there, but nothing definitive thus far.

JPY crosses have seen a huge rally overnight from very depressed levels. Initially, the market seemed to thumb its nose at the idea of BoJ intervention, even after the imminent threat of such intervention was made explicit with the unplanned G-7 statement yesterday which was essentially a public green-light for Japan to intervene at will. At these levels and considering the desperate liquidity conditions in the market, the market ought to take the threat more seriously - the BoJ has enormous firepower and this isn't 2003. The rally overnight is a sign that the market is taking this threat more seriously. As well, a new naked short-selling rule was moved forward to today in Japan and has given the Nikkei some short term support (originally, the move was scheduled for Nov. 4) As JPY crosses go, so likely also will go the USD crosses, meaning that this powerful new force in the markets may finally serve to halt the seemingly unstoppable declines we have seen. If nothing else, the move will now be far more fraught with choppy two-way action even if the decline continues, as Japan is likely drawing a line in the sand here.

The countervailing force in this market to any potential moves by the BoJ and other Central Banks' intervention efforts is the strong risk of both month-end and year-end-related forced liquidation by mutual funds and hedge funds as they contend with an avalanche of redemptions. The question is to what degree speculation has entered the picture and tried to take advantage of the desperation out there. The end of the month trade is upon us this week and may be a key test for where we stand on this front. If forced liquidations of assets continue to take the upper hand then the seemingly endless vortex of declines may continue.

In any case and especially after last Friday's action, we must underline that risk has never been higher in the markets and one must tread more carefully than ever in these markets.

Finexo Forex Headlines

Rally in risk hits a rough patch as uncertainty continues. But credit spreads are easing and must ease more for a continued renewal of risk appetite.

US September Retail Sales on tap - the credit crisis began hitting with full force in mid-September - any USD implications?

LATEST HEADLINES

US ABC Weekly Consumer Confidence out at -48 vs. -44 expected and -43 the previous week

• Australia Aug. Westpac Leading Index fell -0.1%.
  
  
  
  
• Japan Aug. Adjusted Current Account Total out at ¥903.2B vs. ¥1156B expected.
  
  
  
  
• Japan Sep. Tokyo Condominium Sales fell -53.3% YoY vs. -38.8% in Aug.
  
  
  
  
• Risk appetite clearly got ahead of itself yesterday after historic 2-day equity rally (as much as 25% in S&P500 from Friday bottom to Tuesday top!).
  
  
  
  
• Most markets in Asia fell on the day, though the Nikkei managed to eke out a 1% gain
  
  
  
  
• It is important for the various credit spreads to come in further for a renewed rally in risk. The US 3-month Libor vs. T-bill spread dropped 11-12 bps, but still above a week ago. 2 yr. dollar swap spreads fell sharply yesterday as bond market reopened in the US.
  
  
  
  
• Theme shift: we will now have a renewed focus on the main street economy if worst part of financial crisis now behind us: US Retail Sales for September up today the first key indicator. Could be worse than expected Norges Bank looking to cut 50 bps today - as Scandies remain very weak.
  
  
  
  
• USD reaction to markets continues to be: the more risk appetite, the weaker and vice versa - same as JPY and CHF.
  
  
  
  
• Intel's revenue and earnings were solid yesterday - a positive sign in an otherwise ugly earnings landscape.
  
  
  
  
• In Canada, elections were held yesterday and it appears that the Conservative Harper will remain in power - though still with a minority government. No apparent FX implications so far.

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LATEST HEADLINES OF FINEXO

• US bond market closed for holiday
• New Zealand Sep. QV House Prices fell -5.8% vs. -4.5% in Aug.
• New Zealand Aug. Retail Sales rose 0.4% MoM and 0.8% ex Autos
• China Sep. Exports rose 21.5% YoY vs. 20.0% expected
• China Sep. Imports rose 21.3% YoY vs. 22.9% expected
• Switzerland Sep. PPI fell -0.5% vs. -0.3% expected and rose 3.7% YoY vs. 3.9% expected

Themes To Watch – Upcoming Session Recommended by Finexo.com

Key Risk Events (All times in GMT)

• Sweden Aug. Industrial Production and Orders (0730)
• UK Sep. BRC Shop Price Index (0930)
• Germany Aug. Industrial Production (1000)
• US Fed's Plosser to Speak (1145)
• Canada Sep. Housing Starts (1215)
• US Aug. Pending Home Sales (1400)
• US Weekly Crude Oil and Product Inventories (1435)
• Japan Aug. Machine Orders (2350)
• Australia Sep. Unemployment Rate (0030)

Finexo Market Analysis

• UK getting ready to put tax payers' money into banks (aka nationalization), according to Chancellor of the Exchequer, Alistair Darling.
  
  
  
  
• US Fed/Treasury considering to get into the unsecured lending market (i.e.commercial paper). This has never happened in the history of the Fed and the legal basis and ramifications are unclear.
  
  
  
  
• The RBA cut interest rates to 6.00% (i.e. -100 bps.). The expectation was 6.50%. ASX200 saw some support after the move (only stock index, which ended higher yesterday). AUD plummeting.
  
  
  
  
• Iceland's Prime Minister says that it cannot be ruled out that they will go bankrupt.
  
  
  
  
• Commodities are plummeting. Several of them were limit down in Shanghai trading. Only exception is precious metals, which are still holding the ground.
  
  
  
  
• DOW dropped to (and closed) below 10,000 for the first time since 2004.