The euro rallied against the greenback for the sixth day to reach a fresh yearly high of 1.4630 during the overnight session however, the EUR/USD may hold a narrow range going into the weekend as the pair remains overbought.
[B][U]Talking Points[/U][/B]
· [B]Japanese Yen: USD/JPY Breaks Below 91.00[/B]
· [B]Pound: Producer Prices Advance for Sixth Month[/B]
· [B]Euro: German Wholesale Prices Rebound in August[/B]
· [B]US Dollar[/B][B]: U. of Michigan Confidence Survey on Tap[/B]
<span style="font-size: 9pt; font-family: "Arial","sans-serif";">The euro rallied against the greenback for the sixth day to reach a fresh yearly high of 1.4630 during the overnight session however, the EUR/USD may hold a narrow range going into the weekend as the pair remains overbought. Meanwhile, the economic docket showed wholesale prices in Germany rose 0.7% in August, while the annualized rate fell at a slower pace from the previous month, and the extraordinary efforts taken on by the European Central Bank should help to stem the downside risks for growth and inflation as policy makers anticipate economic activity to improve going into the following year.
The euro rallied against the greenback for the sixth day to reach a fresh yearly high of 1.4630 during the overnight session however, the EUR/USD may hold a narrow range going into the weekend as the pair remains overbought. Meanwhile, the economic docket showed wholesale prices in Germany rose 0.7% in August, while the annualized rate fell at a slower pace from the previous month, and the extraordinary efforts taken on by the European Central Bank should help to stem the downside risks for growth and inflation as policy makers anticipate economic activity to improve going into the following year.
Meanwhile, ECB board member Lorenzo Bini Smaghi held a hawkish tone during a speech in Rome and said that the Governing Council will have to hike the benchmark interest rate before inflation begins to materialize as the central bank maintains its one and only mandate to ensure price stability. Mr. Smaghi said that the current policy is only “temporary” and expects borrowing costs to rise as the output gap narrows, but went onto say that now is not the time to implement an exit strategy. Moreover, the board member stated that the exit strategy is likely to have a substantial impact on the yield curve once it’s implemented, and said that the non-standard measures have achieved its objectives. At the same time, ECB’s Jose Manuel Gonzalez-Paramo said that the exit strategy will be dependent on the outlook for inflation and financial stability, and expects to see a modest recovery going forward as he anticipates economic activity in some countries to expand throughout the first half of 2010. As the central bank holds an improved economic outlook and expects the euro-region to recover going into the following year, long-term expectations for higher interest rates may continue to drive the euro higher as investors speculate the ECB to tighten policy over the next 12 months.
The British pound continued to retrace the sell-off from the previous month and advanced against the U.S. dollar for the fourth day to reach a fresh weekly high of 1.6744, and the improved outlook for inflation may drive the GBP/USD higher going into the North American trade as investors anticipate the Bank of England to raise the benchmark interest rate next year. Producer prices in the U.K. rose 0.2% in August, with the annualized rate falling 0.4% from the previous year amid forecasts for a 0.5% decline, while input prices surged 2.2% from July to top expectations for a 1.0% rise. At the same time, core prices rose 0.2% during the month, which was in-line with expectations, while the annual rate grew 0.7% from last year after rising 0.1% in the previous month. As the extraordinary efforts taken on by the government helps to stem the downside risks for growth and inflation, the central bank is likely to hold an improved outlook for the economy, and the British pound may continue to trend higher over the near-term as growth prospects improve.
U.S. dollar price action was mixed across the board, with the greenback tumbling lower against the Japanese yen for the fourth consecutive day to trade below 91.00, and the reserve currency may face increased volatility going into the U.S. session as the economic docket is expected to show a rebound in consumer confidence. The U. of Michigan confidence survey is anticipated to improve for the first time in three months, with economists forecasting the index to rise to 67.5 in September from 65.7 in the previous month, and the data is likely to encourage an enhanced outlook for private sector spending as household sentiment improve. At the same time, import price are expected to rise 1.0% in August, with wholesales inventories projected to fall for the eleventh month in July, while the public deficit is anticipated to widen to $139.5B in August from $111.9B in the previous month, and the slew of data is likely to move the markets as the markets thin ahead of the weekend.
[B]Will The EUR/USD Remain Above 1.4000? Join us in the Forurm[/B]
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[B][I]To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I][/B]
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