The yen has managed to lose ground against its major counterparts, with USD/JPY reaching another weekly high at 97 and EUR/JPY AT 136.50 amid good news out of China regarding its better than expected Manufacturing data. The fact that the Chinese economy has staged a recovery over the course of the last four months is making investors return to riskier trades and the carry trades seem to benefit once again. Although the rate differentials are not the same anymore in terms of Japan versus US or Europe, nevertheless the reality is that Europe or the US are most likely to raise rates in the coming future when the recovery globally starts to become reality.
The EUR/USD has managed to hold important 1.40 for now, and next level to watch is 1.4160. Traders are waiting the news later on today before they commit either way, however it seems like the EUR/JPY has helped the pair maintain its gains and if better than expected news come out, risk appetite may continue to weaken the dollar all across the board. The range for now is 1.3960-1.4160 and a clear breakout of those levels will show us the next move.
The economic calendar had a few important releases out of UK, with PMI coming out better than expected and also the very important ADP report out of US which came out worse than estimated. This Friday the non farm payrolls will monopolize traders interest as it will reveal if the so called recovery in the economy continues with a fast pace or if its just a myth. The ADP report showed that -473.000 got lost last month instead of a better number which was widely expected, and now traders are betting that maybe this Friday they will be in for a nasty surprise which could very well create uncertainty and confusion about the economic future. Also we have ISM Manufacturing and Pending Home Sales which will give more reasons for investors to buy stocks and riskier assets if they print positive numbers.
The dollar has continued to weaken across the board, as the investors know that ADP could be false alarm regarding the real number; however the stocks continued to rise, after the Chinese better economic numbers. Investors are hoping that the worse is indeed over for now, as China is a big player globally and if their economy is getting a lift then that means the rest of the world is next. Although we see stocks rising, market participants are in no harry to stay long in stocks and equities, as news may be better, however not consistent, which makes it complicated for hedge funds across the globe.
For now, let€™s see how the EUR/USD reacts at 1.4160 and GBP/USD AT 1.6560, AND if the latter levels give way. It will be interesting to see how the traders will position themselves for tomorrows€™ rate decision by the ECB, which although the forecasts wants the bank to leave rates unchanged, nevertheless, Trichet€™s speech will be important for any more euro strength in the coming days€¦