Thursday February 8, 2007 - 11:12:55 GMT
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Forex Research: Mellon FX Daily - U.S. Edition
Mellon FX Daily 05:35 EST
â€¢ Haru comments underpin weaker JPY.
â€¢ EUR could rise further if Trichet advances resilient message at todayâ€™s ECB meeting.
â€¢ GBP should weaken a little further if MPC leaves rates unchanged.
This weekâ€™s ECB meeting (see below for preview) suddenly became a risk for the EUR
after last weekâ€™s newswire rumours about the possibility of a more dovish approach to policy in the months ahead. However, the market has become more relaxed about it as the week has worn on and probably with good reason. Todayâ€™s presentation is likely to be EUR-USD supportive and this should see a retest of the top end of the current range at 1.3050-60.
has remained soft overnight aided by comments from the BoJâ€™s Haru that a weak JPY is positive for the Japanese economy. This has helped to underpin expectations that the weekendâ€™s G7 meeting will fail to reveal anything new about the JPY. 157.80 (tested already) is the main resistance level on EUR-JPY â€“ 121.40 on USD-JPY. Oddly enough, this morningâ€™s much weaker than expected Swiss CPI data seemed to correspond with a sharp spike in USD-JPY and EUR-JPY, suggesting that â€˜carry tradeâ€™ currencies are trading in tandem. Japanese bank lending last night was reasonably solid, maintaining the sharp rise seen the previous month, although this is not enough to offset the weaker data seen elsewhere (i.e. CPI and consumer spending). Tonight sees the release of the latest machinery orders data. Orders have bounced back over the past two months from the very low levels seen in September, but remain well below the peaks of Q2.
could retreat a little against the EUR if, as we expect, the MPC leaves rates unchanged (see below for preview). Resistance on EUR-GBP is at 0.6625, although if this breaks expect 0.6650 to hold. The interest rate backdrop will remain GBP supportive for the time being.
â€“ the MPC meeting is the main focal point and after last monthâ€™s surprise and the generally strong data that has followed, there is clearly some uncertainty about the outcome. On the face of it, the MPC may naturally feel a little uncomfortable about pursuing successive rate hikes and the January minutes did strongly suggest that the hike at that meeting was basically the bringing forward of the February move. However, the added uncertainty today is that this is an Inflation Report meeting, which will mean the generation of a new set of inflation and growth forecasts. If the inflation forecasts are high enough the MPCâ€™s policy rules would suggest another rate hike. This does seem unlikely but there is a risk. If rates are left unchanged there will be no statement and the Inflation Report itself (due next week) will be significant in determining market expectations about future rate hike risk.
â€“ the ECB meeting is likely to see rates being left unchanged, with Trichet having made this fairly clear in January. Key will be his comments at the press conference about what is intended for March and the focus on this has been heightened by newswire rumours last week that rates may not be hiked until April and will then stay on hold. The primary focus will be on whether he uses the word â€˜vigilanceâ€™. Unless he vigorously attempts to suggest that the past rules on the use of the word vigilance have changed, the use of the word or otherwise will drive expectations about the outcome of the March meeting. It seems likely that he will signal a March hike today. Trichet will also be questioned about last weekâ€™s rumours, although expect him to brush these aside as being irrelevant and for him to reiterate that the ECB council has no need for â€˜anonymous communicationâ€™ as he was also forced to do last April. He will likely state that ECB meetings and press conferences are the only important vehicles for policy communication.
Data/event EDT Consensus*
UK MPC rate announcement 07.00 unch
EU ECB meeting outcome 07.45, press conf 08.30 unch
CA Housing starts (Jan) 08.15 215k
CA New house prices (Jan) m/m 08.30 +0.5%
US Initial claims (w/e Feb 3) 08.30 310k
US Continuing claims (w/e Jan 27) 08.30 2553k last
JP Machinery orders â€“core (Dec) m/m 18.50 -0.7%
AU Housing finance (Dec) m/m 19.30 +0.3%
Latest data Actual Consensus*
US Consumer credit (Dec) +$6.0bn +$6.0bn
NZ Unemployment rate (Q4) 3.7% 3.8%
JP M2 plus CDs (Jan) y/y +1.0% +0.9%
JP Bank lending (Jan) y/y +1.7% +1.7% last
GB NIESR GDP (3mths to Jan) q/q +0.8% +0.7% last
AU Employment (Jan) -3.6k +5k
AU Unemployment rate (Jan) 4.5% 4.6%
CH CPI (Jan) y/y +0.1% +0.5%
DE Trade balance (Dec) â‚¬10.8bn â‚¬16.5bn
DE Current account (Dec) â‚¬9.8bn â‚¬10.5bn
DE Exports (Dec) m/m -2.0% +0.3%
GB HBOS house prices (Jan) m/m +1.3% -0.9% last
SE Ind prod (Dec) m/m +2.5% +0.7%
* Consensus unless stated
ï›™2005, Mellon Financial Corporation Note: Although obtained from sources believed by us to be reliable, Mellon Financial Corporation and its affiliates cannot guarantee the accuracy or completeness of the information upon which this report is based. This report does not purport to disclose the risks or benefits of entering into particular transactions and should not be construed as advice in any specific instance. The views in this report constitute our judgement as of this date and are subject to change without notice.
Ian Gunner 44 20 7163 5996 06.40 EDT Monday May 31 2005
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