10:00 GMT (Global-View.com) Sep 29- The tone of the USD is looking soft heading into North American trade today. We assume that the Obama administration is pleased with the weakness in the currency as the U.S. economy has a long history of responding positively to a weak dollar. In the past the main downside to a weak dollar has been inflation, but price pressures are not an issue at the present time. On the other side of the equation, so they should be unconcerned with EUR strength. Furthermore EUR strength lessens the need for the central bank to restrain monetary policy.
Tuesday saw a weaker than expected Conference Board survey, which further rattled market confidence in the U.S. and reinforced expectations for a new round of Fed QE after the November FOMC meeting. This would involve an outright purchase of U.S. government debt. The anticipation of QE saw yields on the benchmark U.S. 10-yr note fell once again. They should be monitored closely again today. Markets feel QE is debasing a currency by adding to its supply.
The BOJ quarterly Tankan survey sent a mixed message, with current data strong, but forward looking measures weak. The BOJ has proved unable or unwilling to hold the USDJPY 85.00 line. 84.00 has fallen and many now feel that 82.00 is their line in the sand. We will see. The government is putting together an economic stimulus program and the BOJ is thought to be preparing another round of quantitative ease (QE). It is safe to assume that Tokyo is sitting in the background waiting for an opportune time to pounce. One goal of officials is not be predictable..
UPCOMING DATA HIGHLIGHTS: In North America, the U.S. will see weekly mortgage statistics, and a treasury 7-yr auction. Canadian PPI data are due as well
The EURUSD is unchanged on the day and the GBPUSD is higher. The EURGBP cross is steady. Traders are still watching the European sovereign debt situation.
In the GBP, markets are keeping an eye on the U.K. economy.
The USDCHF and EURCHF are unchanged. The SNB strong stand in supporting the EUR against the CHF has waned after massive FX losses. Flows out of the EUR into the CHF remain an issue for the SNB.
The USDJPY is lower and the EURJPY cross is lower. While Japanese public finances are a mess, analysts point out that most JGBs are owned by Japanese, so Japan is not dependent on foreign investment. The government has been pressed the BOJ to promote growth and favors a lower exchange rate.
Some traders focus intently on the Japan vs. U.S. 2-yr note spread (only the U.S. 2-yr moves much).
The risk trade continues to be turned on and off almost daily. As for the commodity currencies (CAD, AUD and NZD), they are mixed vs. the USD. The Bank of Canada recently has been sending mixed policy signals. A strong CAD eases the pressure on the Bank of Canada to tighten. In Australia, the RBA is likely to tighten in October. The RBNZ is now in a reduced tightening mode. Oil and gold are mixed. Gold is still favored as a refuge from paper money.
EQUITIES & INTEREST RATES
Equities and Bonds are also risk trades. Far East equities closed mixed. European bourses are lower. U.S. equities are down. The U.S. 10-yr was last 2.46%, 0 bps.
Bonds are a counter to risk trades because risk investments must be financed. When the cost of money moves up (higher interest rates), the return and allure of risk trades such as equities falls.
See ECONOMIC CALENDAR for a complete list of future forex market events and consensus data estimates. Go to the forex forum for up-to-date market developments and technical trading ideas.
John M. Bland is an author and co-founder and partner of Global-View.com. Prior to Global-View.com, he was a forex trader and a private-label forex analyst for a top Fed watching service in NYC. He has been a corporate forex advisor and also worked in international liability management for a major N.Y. money center bank. John holds an MBA from the University of California at Berkeley and a B.A. in International Economics from that school.
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