Another seesaw night of price action in the currency market with many of the majors reversing direction in European trade from the initial moves made in Asia session.
â€¢ Japanese Yen: Back to 100 as equities rally and data mixed
â€¢ Euro: Hovers near 1.5800 on Weber comments but Retail PMI drops below 50
â€¢ Pound: Below 2.000 as CA deceptively bad
â€¢ Swiss Franc: KOF disappoints
â€¢ US Dollar: Personal Income Spending on tap
Euro Remains Firm â€“ But Is There Weakness Underneath?
Another seesaw night of price action in the currency market with many of the majors reversing direction in European trade from the initial moves made in Asia session. USDJPY climbed back above 100.00 after plumbing stops near the 99.00 level in Tokyo trade. The rally in the USDJPY was due to mixed economic data from Japan and better tone in global equity markets which helped to push some flow back into the carry trades.
On the economic front Japanese data left many traders perplexed as both inflation and Retail Trade increased while overall household spending and labor demand deteriorated. It appears that while the Japanese economy continues to try to claw its way out of stagnation and deflation the progress is slow and uneven. The latest bump in unemployment may only make the consumer more cautious leaving overall household spending moribund for the time being. Household spending remains the lynchpin of the Japanese economy and unless it improves, the BOJ will remain on the sideline despite growing evidence that inflationary pressures are begging to percolate in the system
In Europe meanwhile, the EURUSD received a boost from more hawkish comments from Axel Webber who emphasized the price pressures in EZ were alarmingly high suggesting that the ECB will not consider any easing in the foreseeable future. Nevertheless, the latest data from Retail PMI readings revealed that consumer demand in the 17 member union may be starting to slow down significantly. The Retail PMI report slipped below the 50 boom/bust level for the second time this year, led lower by a sharp drop in Italian numbers which registered their worst reading since the survey began.
Italy remains the weakest link amongst the top 3 EZ economies and if the situation there deteriorates further political tensions in the region could begin to undermine euro seemingly relentless rise as the interests of Italy, Spain and other southern European members could come in conflict with those of France and Germany where growth continues at a healthy pace.
However, EZ political tensions are unlikely to become a major story just yet. In the meantime, markets will continue to focus on the state of the US economy with todayâ€™s Personal Income/Personal Spending once again key. If spending exceeds income it will suggest further deterioration in US consumerâ€™s balance sheet position, and may push the EURUSD all the way to 1.5900 as recession fera reverberate. A better result on the other hand could quell some of the worry and spur a much needed dollar relief rally.
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To discuss this article please contact Boris Schlossberg, Senior Curency Strategist: [email protected]