â€˘ Japanese Yen: Trust demand spurs carry trade buying
â€˘ Euro: Off the highs as sentiment misses
â€˘ Pound: Pound weaker despite better GDP and CA data
â€˘ Dollar: Durable Goods on tap
Japanese retail and institutional demand for yield drove USDJPY back above the 115.00 level as nearly 13 Billion dollars worth of investment trusts are due to launch next Thursday and Friday. However once the trusts are funded yen may strengthen as the latest economic and political news may prove to be constructive for the currency.
On the political front the election of Yasuo Fukuda, a moderate politician with friendly relations with China, should quell some of the unease that settled over the worldâ€™s second largest economy during the past two weeks. In the economic news the countryâ€™s Trade balance surged by three times the analystâ€™s estimates as exports of cars and steel led to a surplus of 743.2 Billion yen versus projections of 230 Billion yen.
Yen may also see a boost later on the US session if the US Durables Good number misses its mark. Given yesterdayâ€™s horrid consumer confidence readings which fell below the psychologically crucial 100 level, Durable Goods orders may print worse than the -3.0% forecast. Should that occur, markets would most likely begin pricing in anther possible 50bp rate cut from the Fed as early as its next meeting on October 30th.
As the interest differentials continue to compress in the USDJPY the attraction of the carry trade will diminish considerably. Whereas the Fed tightening regime created a virtuous cycle for carry traders, turning every dip into a buying opportunity for the pair, the loosening regime may unleash a vicious cycle with every rally failing at ever lower highs.
Meanwhile in Europe, the EURUSD retreated from its all time highs of 1.4163 after both GFK German confidence survey and French Production Outlook Indicator surprised to the downside. The rhetorical sparring between French political leaders and the ECB continued today with French Prime Minister Lagarde noting that with respect to EZ interest rates,â€ť at least stability, if not reduction, would be appropriate". With ECB monetary policy shackled by the slowdown of EZ growth and the record strength of the currency, the EURUSD continues to trade more as the anti-dollar rather than on any positive expectations of further rate hikes which may limit its upward movement.