EU Morning Report

Japanese Yen plummets due to the return of the carry trade

  • The euro rallied on Friday making a fresh high against the dollar. The single currency continues to be supported by ECB's decision to raise its lending rate by 25 bps to 1.25% in an effort to fight inflation. Even though Trichet did not signal the beginning of a rate hike series, speculators argue for another 25 bps rate hike in Q2. The pair broke above the 1.44 level on Friday edging as high as 1.4487 from 1.4290.
  • The US dollar appears weaker against its major counterparts weighed by an improved risk appetite in the market. The dollar Index plummeted to its lowest level since December 2009 as expectations for a change in the Fed's loose monetary policy faded. Fed Vice-Chair Janet Yellen's dovish comments weighed further on the greenback after saying that it is not the right time for the Fed to exit its loose policy
  • The Japanese Yen fell hitting an eleven month low versus the euro and a two and a half year low versus the Aussie. The yen appears to be weighed by the return of the carry trade, which happens when investors sell low yielding currencies such as the yen in exchange for higher yielding ones such as the euro and the Aussie. Against the yen, the euro rose to 123.31 and the Aussie climbed to 90.0. The dollar edged lower against the yen falling to 84.62 from 85.38.   
  • The Australian dollar rose broadly supported by surging commodity prices. Further supporting the Aussie was trade data from China that revealed stronger than expected figures for March. Against the dollar, the Aussie rose to a fresh 29 year high at 1.0582 on Friday from 1.0452. 
  • Sterling rose against a weaker greenback on Friday. The sterling continues to remain supported by interest rate hike expectations. UK Producer Price Index data came in stronger than expected in March adding further to inflation pressures. Focus now shifts to the BoE minutes released on 20 April. The pair edged as high as 1.6426 from 1.6314.
  • Oil prices remained elevated supported by geopolitical uncertainties in the Middle East and rose at 113.13 dollars a barrel. Gold rose to a fresh record high at 1476.25 dollars an ounce from 1456.18. Silver rallied to 41.93 dollars an ounce.

Currency to watch out for: EURUSD & USDJPY  

  • § The EURUSD pivot point is at 1.4400 with a preference to enter Long positions at 1.4410
  • § The USDJPY pivot point is at 85.50 with a preference to enter Short positions at 85.45               

Today's calendar and market movers:

  • § UK House Price Balance in March is forecasted to fall to -23%  

Equity Markets:

US equities were negative on Friday with the S&P500 trading down -0.4% and the DJIA trading down -0.24%. The European bourses were positive with the FTSE trading up 0.81%, the DAX up 0.53% and the CAC up 0.83%. The NIKKEI and the HSI at the time of writing are trading down -0.46% and up 0.01% respectively.

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