[B]Talking Points
• Japanese Yen: Back down towards 106.00 as US earning results not friendly
• Euro: Mildly bullish on anti-dollar bid
• British Pound: Borrowing rises to record pace since 1992
• US Dollar: No data on tap all eyes on Citi[/B]
A relatively quiet and data free night in the currency market as FX trading continues to be influenced by macro rather than micro factors. After the US equity close yesterday Microsoft, Google and most importantly Merrill Lynch reported disappointing results stoking fears that US economy may be on the verge of a recession while the financial sector troubles show no signs of improvement.
The misses in MSFT and GOOG had an instant impact on USDJPY which dropped below the 106.00 level in early European trade before bouncing slightly. Yesterday the pair hit a high of 107.17- its best showing in a week - as risk appetite appeared to have returned to the market. But those flows may be quickly reversed if US equities close negative today and could pull the pair back towards 105.00 figure if investor sentiment sours once again.
On the economic front, German Producer Prices rose the most in 26 years as price pressures continue to plague the 15 member union. The news kept the EURUSD bid on further speculation of more rate hikes. On the other hand EZ Trade Balance deteriorated far worse than expected printing at –4.6 Billion euros versus forecast of –1.5 Billion as higher euro and weaker global demand clearly hit exports hard. The market had absolutely no reaction to the report, preferring to focus on the weakness in US equity results. However, today’s EZ trade data shows a troubling trend of increasing trade deficits over the past several months. If that trend intensifies it may damage the euro as time goes on. One of euro’ s strongest advantages over the greenback has been the much better balance sheet position of EZ vis a vis the US. While US Current Account deficit continues to be massive, the fact that the EZ to is also slipping into a negative trade position weakens the euro bulls argument of euro’s financial superiority and could spur some speculative outflow from the currency if the situation worsens as we approach the end of 2008.
Finally, with no economic data on the calendar all eyes will be on Citibank which reports earnings before the US open. If the financial behemoth disappoints it could drag stocks lower and push EURUSD above 1.5900 before the weekend. If on the other hand it surprises to the upside, the buck could close out the week on an uptick as investor sentiment improves.
[B]Will EUR/USD Trade to 1.65? Join us in EURUSD Forum[/B]
