[B]Talking Points
• Japanese Yen: Sellers at 102.50 keep pressure on the pair
• Euro: Hot German PPI but failure at 1.60 weighs
• Pound: Trades strongest of the night as money supply growth continues
• Canadian Dollar: Wholesale prices ahead
• US Dollar: No data on tap[/B]
The 1.60 figure remained tantalizingly out of reach for euro bulls for yet another day, as many option barriers at that level remained well protected. Having failed to break that level four times over the past few days, the EURUSD weakened in quiet overnight trade as bears tried to capitalize on lack on momentum and push the pair below the 1.5900 figure.
However, with economic data continuing to favor the euro – German Producer Prices reached a 15 month high on rising energy costs – it may be just a matter of time before the euro bursts through 1.60. Even Italy, which has been the weakest link amongst the 3 major European economies, showed a surprising strength as Industrial Orders jumped 2.0% versus –1.0% expected. For the time being the decoupling thesis remains in place and on the fundamental basis the euro is not only benefiting from relatively buoyant economic performance in the EZ but also from hotter than expected inflationary data which is likely to keep the ECB stationary for quite some time.
The pound meanwhile continued to show the best performance of the night on speculation that a UK mortgage plan could be announced as early as next week. The WSJ website reports that the BoE is considering accepting as much as 30 Billion GBP in mortgages from banks as collateral. The unit was also underpinned by the latest release of M4 supply data which registered a stronger than forecast expansion to 12%. With money supply growth still in double digits, the BoE is likely to proceed slowly in lowering rates further. Having plumbed the lows just under the 1.9700 figure only yesterday, cable came within 10 points of hitting the 2.000 figure in early London trade before backing off slightly.
Trading may remain choppy as we go in to the week-end as US calendar is barren. Having successfully defended the 1.60 level this week, euro bears may be feeling that sentiment has finally turned their way but if US data proves disappointing next week, the run for 1.60 may not be over.
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[B]To discuss this article please contact Boris Schlossberg, Senior Curency Strategist: [/B][email protected]