Talking Points

  • Japanese Yen: BoJ leaves Rates Unchanged
  • Pound: Rises Despite Decrease in Consumer Borrowing
  • Euro: Finds Rally's on Increased Risk Appetite
  • US Dollar: Producer Prices, Jobless Claims On Tap

Euro, Pound Rally on Increased Risk Appetite; Has Yen Lost Its Safe-haven Status?

The Euro rallied over 100bps from yesterday's low of 1.2516 to a high of 1.2674 as Asian and European stocks ended their skid. However, the gains may be limited as former support at 1.2700 may turn into resistance. There was no fundamental data to impact price action but sentiment towards the European economy remains negative and with the ECB expected to cut rates at their March policy meeting, we could see Euro weakness resume. As the rest of the developed nations head toward a zero interest rate policy the ECB has refrained from following as they fear sowing seeds for future troubles. However, the current downturn is extraordinary due to the meltdown of the financial markets and if the central bank remains behind the curve it could set the back the European economy for years.

The British Pound would also find support on the increasing optimism sending it rose nearly 300 bps from yesterday's low of1.4104 to a high of 1.4150. However, recent weakness has sent sterling below the 20-day SMA at 1.4357 which could provide resistance. However, the key level to watch will be the 50-Day SMA at 1.4591. The only economic data to cross the wires was M4 money supply and public sector net borrowing. Britons borrowed £3.3 billion less in January which was a sharp decline from the £16.5 billion the month prior, which could signal that tomorrow's retail sales numbers may be worse than expected. However, the decline was better than the £7.0 billion that was expected which continues the trend of U.K. data surprising to the upside.

The BoJ keep its benchmark rate at 0.10% as expected but failed to outline further measures to increase purchases of short-term government bills as markets were expecting pushed down JGB's. The Yen has continues to weaken as the currency has started to lose its safe-haven status due to concerns over the Japanese economy. The global downturn, a strong Yen and the inability of corporations to generate funding has sent the economy into its worst downturn in 35 years. Additionally, with other countries now on the verge of implementing a ZIRP the Yen has lost its attractiveness as a funding currency. The 100-Day SMA lies ahead as resistance at 94.18, a break above there could lead to a test of 97.42 the 11/25 high.

The U.S. government made another attempt to put a floor under the housing crisis when President Obama announced the details of a $75billion foreclosure prevention plan. The measure helped calm fears which have stopped the bleeding of equity markets. The increase in risk appetite that was generated during overnight trading is expected to continue today as Dow futures were up over 75points which could lead to further dollar weakness as investors sell U.S. treasuries for riskier assets. However, the fundamental calendar may dampen bullish sentiment as initial jobless claims are expected to be above 600,000 for another week which will remind investors of the mounting job losses the economy has and will continue to experience. Additionally, producer prices are expected to have declined by 2.4% in January on an annualized basis, but the 0.3% forecasted gain in the monthly reading could be a sign that prices are stabilizing. The Philadelphia Fed manufacturing reading is expected to decline to -25 as weak domestic and global demand has stalled activity. The data could limit the potential for dollar weakness as traders realize that despite the government's efforts the U.S. economy is far from on the road to recovery.




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