A busy night of trade in FX that saw the dollar gain across the board as economic data from Japan to Australia to Germany produced one disappointment after another and sent the buck rallying against all of its major trading partners.
â€˘ Japanese Yen: Above 100 as Tankan weaker than forecast
â€˘ Australian Dollar: Dives as RBA cast a cautious tone
â€˘ Euro: Drops through 1.5600 Retail Sales sink
â€˘ Pound: PMI Manufacturing remains firm rate cut may not occur
â€˘ Swiss Franc: UBS reveals 13 Billion franc loss
â€˘ US Dollar: Ism Manufacturing on tap
A busy night of trade in FX that saw the dollar gain across the board as economic data from Japan to Australia to Germany produced one disappointment after another and sent the buck rallying against all of its major trading partners. In Japan the Tankan survey printed at 11 versus 13 forecast as manufacturerâ€™s confidence fell to a four year low as a strong yen and slowdown in US demand weighed on exporters. Manufacturers expected USDJPY to trade at an average of 109.21 in this fiscal year - an assumption that we believe to be overly optimistic - as further US rate cuts and slowdown in US economic growth are likely to keep USDJPY closer to the 100 level rather than 110.
In Australia the RBA kept its short term lending rate at 7.25% but the central bankâ€™s cautious tone indicated that further rate hikes are unlikely. With gold below 900 and other commodities beginning to cool, the Aussieâ€™s storied run may be coming to an end at least for the near term. If commodity boom begins to slow as many bears predict, the Aussie will be one of the most vulnerable currencies in G-10 as traders will begin to anticipate a change of course from RBA. For now the central bankers in Canberra have simply shifted into neutral rather than going into reverse.
The real turn of the night however came from the Euro-zone where German Retail Sales missed badly to the downside printing at -1.3% versus 0.5% projected. The news sent EURUSD reeling as it dropped through the 1.5700 figure. Since yesterdayâ€™s dramatic turn near the 1.5900 level the EURUSD has lost nearly 300 points as sentiment towards the single currency has turned decidedly sour. The latest news suggests that euro bearâ€™s argument for recouping may be finally coming true as the negative impact of the US economic slowdown is beginning to weigh on the Euro-zone as well. Despite todayâ€™s dour data the ECB is unlikely to change its hawkish stand for now, but as we noted in our weekly, â€śWith EURUSD running into serious resistance at 1.5900 only further deterioration in US economic condition is likely to push it beyond that figure.â€ť
Todayâ€™s US event risk centers on ISM Manufacturing data, and although markets expect another low reading, we believe the potential for a bounce exits, given yesterdayâ€™s better than expected result from Chicago PMI and the persistently low dollar exchange rates which should favor US manufacturers. If ISM does surprise to the upside, the 1.5600 level may give way and all signs will point to the fact that EURUSD may have set an intermediate term top.
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