Thursday, August 31, 2006

Yen strikes record low against Euro and GB

The Dollar was flat against the Euro and slightly higher against the Yen yesterday, with expectations that interest rates differences remains unchanged between US, Eurozone and Japan. The Yen slid across the board hitting a record low against Gbp and chf after data showed industrial output fell 0.9% in July (vs forcast +0.7%). GbpJpy went to 8 years record of 123.58 (+1.2%). By the end of the day, the Eurusd was nearly unchanged at 1.2835. The Eurjpy also hit a fresh record high at 150.62 early this morning. Also the UsdJpy rose to 117.34 and Usdchf was steady at 1.2280. GbpUsd inched to 1.9062. The other biggest mover was the NzdUsd which rose 1% from 0.6391 to 0.6527 boots by reduced expectations that new zealand’s central bank will cut interest rates next year. But dealers warned that it may be in store for a correction soon.

The market focus on on today policy meeting of the ECB. It is almost fully pricing no change in interest rates but assuming it to rise to 3.25% from 3% next October. Analysing the Fed outllok, the market will hold breath on key data due to land as July’s PCE price index (central bank’s favoured inflation gauge) at 12:30 GMT and payrolls on Friday. US weekly Initial and Jobless claims are today respectively expected 315k vs 313k.

Eurusd, we still expect bullish trend to come, but the 1.2900 and 1.2980 resistances remain the critical steps to erase. Latest consolidation seems to favor a September bullish horizon. Once 1.2842 resistance is clear, then the bulls will likely try to remove 1.2890 level. It could be some small decline intraday, and maybe test 1.2725 support, but holding or taking out 1.2890 will call form break up of 1.2941. UsdJpy could suffer from profit taking at 117.42, but aggressive bulls can maintain long exposure above the support trend line 116.40. Today UsdJpy tone is slightly positive. GBPUSD maintain a bullish posture after pushing above 1.9050. There's little significant trend line resistance till the 1.9110. Only a break of the 1.8897 reaction low from Tuesday would give down pressure in the short term.

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