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Forex Trading StrategiesUSD rally looking sluggish - a little correction weaker in order? Maket shrugs off Bank of Japan and high Japanese confidence data.
No US data of interest until tomorrow's Trade Balance number. GBP/USD to consolidate higher today on UK trade balance data?
MAJOR HEADLINES â€“ PREVIOUS SESSION
â€˘ Bank of Japan votes 7-2 to keep quantitative easing policy targets unchanged
â€˘ US Treasury Auction of 10-Yr. Notes showed low indirect bidding again
â€˘ UK Production for Dec. in-line with expectations of small growth
â€˘ Canada Housing Starts very strong (248k vs. 225k exp.)
â€˘ US Energy supplies show slight draw in Crude supplies
â€˘ Australiaâ€™s Unemployment Rate rose to 5.3% vs. 5.1% exp. Employment Change was a meager 1.8 vs. 14.0 expected
â€˘ Japan Consumer Confidence rose to 49.5 (vs. 48.0 exp. & 46.7 prev.)
JPY turned weak again and new highs in the USD vs. European currencies were beaten back overnight.
\THEMES TO WATCH â€“ UPCOMING SESSION
It looks like we're guilty of "much ado about nothing" as the market seems willing to plow back into short JPY trades with abandon after the short, sharp correction in the JPY stronger the day before yesterday. The Bank of Japan report failed to show much of a change in stance, even as the comments on the economy have become quite positive. So, unless Fukui can drop a bomb or two at his press conference, it looks like we're off to the races again on the short JPY trades, especially if we're all the way back through 142.50/60 in EUR/JPY. The key drive may continue to be the move of domestic capital abroad as Japan has seen skyrocketing growth in investment vehicles that seek higher yields in foreign paper and stocks.
Elsewhere, the USD rally has turned awfully sluggish, with the brief penetration of the rather solid 1.1950 support area in EUR/USD handily beaten back overnight. The same goes for the attempt below 1.7400 in GBP/USD. It looks like short term consolidation weaker for the USD may be the flavor of the day today ahead of tomorrow's trade balance report.
The 10-year treasury auction yesterday again showed rather anemic demand (this makes more sense with longer yields ) The 30-year auction may be different, however, as the word is that many pension funds are salivating at the prospect of snapping up long term US paper - their first chance to do so since 2001. The whole treasury auction demand/USD strength issue is a bit of a "chicken and egg" problem as, on the one hand, anemic demand suggests the prospect of low capital flows into the US, which is USD bearish. But anemic demand also means higher interest rates, which is USD bullish. Which wins out? It looks like we'll see soon, as US long interest rates are closing in on the highest levels seen since early November last year, so we could see an important inflexion point for the USD if rates continue to steam higher through 4.75% for the 10-year or if they are abruptly stop and turn south again. Meanwhile, the STIR differentials continue to give the USD the edge for now.
AUD looks increasingly vulnerable with the constant stream of negative data points. EUR/AUD has become an interesting pair to follow lately, as we look for a larger trend indication there with a move out of the 1.6000/1.6400 band.
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