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Japan deflation. Weak JPY policy persists. Mixed Eurozone influences
|Japan deflation. Weak JPY policy persists. Mixed Eurozone influences|
28 January 2013 00:00 gmt
CALENDAR: Far East: AU/NZ- Holiday. Europe: No Major data. North America: US- Durable Goods, Pending Home Sales, 2-yr.
- HIGH IMPACT ITEMS: AU- Holiday, US- CPI, DE- Durable Goods, Pending Homes Sales.
- CURRENCY WARS: Japan continues to favor a weakening of the JPY as one of several means to encourage economic growth. Tokyo has no choice than to pursue all avenues for stimulating growth and will continue to do so. They are starting to encounter push back from players such as Germany. Keep in mind that currency values work in pairs, so a weaker JPY means a stronger USD or Eur, etc. All countries at the present time are pursuing policies to encourage economic growth.
- At the end of last week, it was announced that Japanese December core CPI remained in contraction declining by -0.2% y/y. The BOJ still has its work cut out to achieve its 2.0% inflation target. Its our best guess that Tokyo is targeting a USDJPY level of around 100.00. That would work out to a rough devaluation of the JPY vs. the USD of 20-30% from previously prevailing levels. We do not feel that Japan's major trading partners will sit still for much more.
- It is not always the case, but strong economic growth has often lead to a stronger currency and vice-versa for weak growth. Data from Europe remains mixed with stronger than forecast German IFO data on Friday reinforcing a robust ZEW survey earlier in the week. On the other hand, French flash manufacturing PMI were exceptionally weak, while U.K. advance 4Q12 GDP fell by -0.3% qq in 4Q12. This means that a triple-dip recession is possible. U.S. data recently have been mixed but generally stronger.
- The markets are currently trying to decipher the likely impact of repayments of special ECB LTRO funding for banks which will start this week. Depending on HOW the funds are repaid, the repayments could result in a tightening of ECB monetary policy.
- The key EURUSD 20-day moving average is 1.3250. the 10-yr bund is 1.64%, +7 bp. European bourses were higher. U.S. shares were up. The U.S. 10-yr is 1.93%, +9bp.
- Key Far East bourses were mixed. The 10-yr JGB is 0.73%, 0bp. the USDJPY 20-day average is 88.25. EURJPY 20-day average is 116.82.
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John M. Bland, an author and a founding partner of Global-View.com has been a forex trader and a FX analyst for a top N.Y. Fed watching service. Previously he was an FX consultant to major institutions. John has an MBA in International Finance and an A.B. in Economics from the University of California at Berkeley.
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- POTENTIAL PRICE RISK: HIGH Mon -- 14:00 GMT EZ- Draghi speaks in Brussels. Looking for any policy hints or bias
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