â€¢ Japanese Yen: Break below 108 on anti-dollar flows
â€¢ Euro: At 1.4900 poised to challenge record highs
â€¢ British Pound: PPI mixed
â€¢ US Dollar: No data on tap
A host of dollar negative rumors swirling about the currency market propelled the EURUSD through the 1.4900 figure on the first trading day of the week. First, a suggestion that the Fed may be forced to enact an emergency intra-meeting rate cut and then speculation that write offs at Citibank would be far steeper than initially thought, all contributed to strong anti-dollar sentiment and sent Asian and European traders flocking to the euro.
After last weeks decidedly dovish outlook from Ben Bernanke the market is beginning to appreciate the fact that the unwind of the credit bubble created by the housing sector may take far longer and cost far more than most participants believed. The decline in asset prices is clearly having a materially negative impact on US consumption, which given the fact that the US consumer comprises 72% of the US economy, could tip it into a recession as early as the first half of this year.
Tomorrow all eyes will be focused on US Advance Retails Sales as traders try to gauge the health of the consumer. Should that number disappoint once again, the dollar could see further weakness. In fact, given the fact that sentiment towards the greenback is so negative, a retest of all time highs in the EURUSD as well as a run through the 1.5000 level appears to be the path of least resistance.
Where do you think EZ and US rates will go? Join us in the EURUSD forum
On the economic front UK PPI data was mixed with input prices falling sharply â€“0.9% vs. 0.3% forecast, but the output numbers were hotter printing at 0.5% vs.0.3% expected. Fears of escalating price pressures may have kept the BOE at bay, but the market appears unimpressed with the hawkish posture of the MPC and expects rates to be lowered in the near future irrespective of any concerns regarding inflation. Cable remained weak on the crosses falling against both the yen and the euro. But as we noted in our weekly trade idea, sterling may be forming a significant bottom
Has Sterling bottomed? Join us in the GBPUSD forum
If you would like to discuss this article with other traders or Senior Strategist Boris Schlossberg, please visit the DailyFX Forum.