[B]Talking Points
• Japanese Yen: Shirakawa nominated BOJ Governor Watanabe Deputy
• Euro: Sentix much better than forecast helps drive euro back to 1.5700
• Pound: Lagging on BOE rate cut expectations
• US Dollar: Consumer Credit on tap[/B]
Despite poor NFP numbers last Friday, the greenback firmed on the first day of trade this week as investors shrugged off the data and focused instead on the stabilization in the US financial sector evidenced by Citibank securing $4.5 Billion in funding. Dollars strength was most pronounced against the yen with the pair rising more than 100 points from Friday’s close. The EURUSD traded below 1.5700 for most of Asia and early Europe, although it did have a small rally after the EZ Sentix survey of investor sentiment printed far better at 4.1 versus 0.2 expected.
With US calendar containing only second tier data, the trade in the pair this week will likely be driven by event risk across the pond, most notably the ECB interest rate policy meeting next Thursday. As we noted in our weekly, “While no one expects any change in policy, traders will be listening intently to any change in tone. If President Trichet sounds a more sober note regarding EZ growth and de-emphasizes the need to control price pressures, that may all that’s necessary to jump start the dollar rally once again.”
In the meantime, 1.5700 appears to be the tug of war line as bulls and bears vie for the control of the pair this week. The EURUSD is clearly overbought, and is having a hard time making any forward progress despite lackluster US data. However, much of the dollar bull case rests on the assumption of deteriorating economic fundamentals in the EZ. If EZ data this week proves surprisingly resilient the pair may once again try scale the 1.5900 all time high. If on the other hand market consensus starts to build around the idea that ECB may have to follow the Fed in easing monetary policy relatively soon, the intermediate term top in the EuRUSD is likely to have been put in place.
Finally, in Japan the Diet has nominated acting Governor Masaaki Shirakawa to be the permanent leader of the country’s Central Bank. Mr. Hiroshi Watanabe was nominated to be the Deputy Governor. While Mr. Shirakawa is a relative mystery, Mr. Watanabe is well known to the markets from his days at MOF as vice minister of finance for international affairs – a post whose holder is often dubbed “Mr. FX” in Japan. Mr. Watanabe is a well established yen dove and should he be confirmed along with Mr. Shirakawa it will be interesting to see their reactions if USDJPY once again slip materially below the 100 figure in the near future.
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[B]To discuss this article please contact Boris Schlossberg, Senior Curency Strategist: [/B][email protected]