Friday June 22, 2007 - 10:27:34 GMT
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Forex Research - Mellon FX Daily - U.S. Edition
Mellon FX Daily 06:00 EDT
â€¢ JPY lower in Europe â€“ more weakness likely.
â€¢ USD supported by strong Philly Fed, but EUR-USD will maintain near-term upside risk.
â€¢ German IFO down but still at high levels.
The stabilisation in the US equity market allowed the JPY to fall in Asia and early Europe and even some pullback in US equity futures in Europe (amidst more angst about the Bear Stearns/mortgage issue) has failed to undermine the move against the JPY. US 10-yr yields have retreated from the higher levels seen late in the US session. Focus will remain on the mortgage issue today.
The significant move on the JPY came in early European trading, with EUR-JPY breaking above the previous high at 166.11. This sets the scene for another round of JPY weakness in the short-term and should also allow USD-JPY to move up towards 124.50. There is a clear risk of these moves extending significantly over the next month or so i.e. EUR-JPY up to 169 and USD-JPY up above 125. Global markets will need to show much instability to threaten this scenario.
The USD gained some protection from the stronger than expected Philly Fed number, which rose to its highest level since April 2005, but the short-term technical bias remains to the upside on EUR-USD,
with risk up to 1.3485-1.3550. EURUSD did pullback below 1.3400 in the immediate aftermath of a weaker than expected IFO survey, but this was very brief and it quickly recovered before pushing up to new highs for the day at 1.3431. The IFO was down on the month but remains at a high level.
If the JPY does weaken further then high-yielders like the NZD
and the AUD
are likely to outperform. The RBNZ has backed off from intervention for now, perhaps sensing that failed attempts to combat such a strong trend will only damage their credibility. They will return, but most probably at a higher level (ahead of 0.7700 or 0.7750) or after a loss of momentum.
â€“ the Belgian business indicator is the only release scheduled for today and this tends to be a good barometer of overall health in the Eurozone.
Data/event EDT Consensus*
Market Holiday in Sweden, Finland
BE Business confidence (Jun) 09.00 3.5
Latest data Actual Consensus*
US Philly Fed index (Jun) 18.0 7.0
DE IFO index (Jun) 107.0 108.4
DE IFO current (Jun) 111.4 112.2
DE IFO expectations (Jun) 102.8 104.7
EU Manu orders (Apr) -0.4% -0.8%
* Consensus unless stated
Â©2007, 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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