[B]Talking Points
• Japanese Yen: Back above 102.00 as equities stabilize
• Euro: ZEW
• Pound: Through 2.01 as RICS worst in 18 years
• Canadian dollar: Trade data on tap
• US Dollar: Trade Balance ahead[/B]
EURUSD popped back above the 1.5400 level as the ZEW survey of analysts expectations improved considerably from –41.4 to –35.0. The ZEW reading reflected the generally positive tone of recent EZ data, as the region appeared to weather the multiple shocks of credit crunch, higher energy prices and disadvantageous exchange rate levels far better than the US economy. The ZEW results give further credence to the thesis that EZ economy has so far managed to de-couple from the multitude of problems plaguing US and the EURUSD continues to make its way towards 1.5500 figure as result. Yet despite the positive tone of today’s trade the pair is grossly overbought and given the rumblings from ECB we think progress beyond the 1.5500 mark will be considerably slower as the market tries to digest this latest up move unless US calendar produces more shocking negative surprises.
In Asia, USDJPY tested the 101.50 level but quickly rebounded above 102.00 as the Nikkei turned positive for the day on the news that the Fed may try more creative ways to provide funds to non-banks and mortgage lenders. The 100 USDJPY level remains within reach but we do not think it will be triggered just yet. Japanese officials are clearly concerned that the sharp appreciation in the yen will hurt the country’s export sector. Even if Japanese officials do not engage in intervention they will surely try to jawbone and slow down the pair’s progress. If US data this week proves positive providing some support for equities, USDJPY should stabilize at these levels and perhaps even rally to 104.00, but if the DJIA fall to 11500 or below as risk aversion persists USDJPY 100 is likely to follow
Meanwhile in UK, the GBPUSD unwound much of the progress it made over the past several days after the RICS data printed at an 18 year low as the housing sector continues to deteriorate. So far UK economy has not yet experienced the full brunt of the slowdown in housing demand allowing the BoE to remain stationary, but many market players fear that just as in the US economy, the decline in housing values in UK will begin to have a serious negative impact on the broader economy and as result EURGBP rallied well above the 7600 level once again.
In US today, the Trade Balance data may boost the buck if export growth continues to show improvement as exchange rates favor US producers. The problem however, is that much of the benefit may be erased by the escalating cost of importing oil which hit yet another record high in yesterday’s New York trade.
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[B]To discuss this article please contact Boris Schlossberg, Senior Curency Strategist: [/B][email protected]