[B]Talking Points[/B]
• Japanese Yen: Dips below 110 as Nikkei follows Dow
• Australian Dollar: Plunges to 89.00 on risk liquidation
• Pound: PPI data hot
• Euro: Slips bellow 1.4600 on EURJPY German FinMin talk
• US Dollar: Veterans day docket empty
The start of the week brought more selling in USDJPY as Nikkei followed Friday’s weak performance in the Dow and plunged more than –300 points on fears of further problems in the subprime sector. However, by mid morning of European trade carry trades stabilized with USDJPY nearly 100 points off the days lows, as traders looked ahead to the North American open. With Armistice Day holiday today there are no economic releases from EZ or US, although capital markets are open. The direction in currencies will most likely take its cue from the movements in the Dow. If DJIA gives up the 13,000 level more carry trade selling may be in store and USDJPY could well test the 109.00 figure before the end of the day.
Meanwhile, as trading begins this week, we may be seeing signs of a near term top in the EURUSD. The pair failed twice at the 1.4700 level last week and by early London trade today broke below the 1.4600 figure, as profit taking and carry trade liquidation began to weigh on the unit. Furthermore, European officials are no longer quite as cavalier about the single currency’s record rise against the greenback. Last week ECB President Trichet refused to issue a clear signal of a rate hike in December indicating that the monetary policymakers are clearly concerned about the one way price action in the FX market despite headline inflationary pressures in the region. Tonight, German Finance Minister Peer Steinbrueck in comments to Der Spigel magazine noted that further appreciation in the euro could slow growth. This was a significant change of rhetoric from just a few days ago, when Mr. Steinbrueck was far more nonchalant about euro’s strength. Should US data this week surprise to the upside, it may provide the necessary spark for a long overdue rebound in the dollar. For now however, control of the market remains with euro bulls and unless 1.4500 level is broken decisively the bias in the pair is still to the upside.
Finally, UK PPI data proved hotter than expected with core PPI Output gaining 0.6% on the month versus 0.2% projected. The news suggests that price pressures in the UK economy are quite serious and may prevent the BoE from considering any loosening action for the near future.
