Written on
September 3, 2010 – 12:09 pm | by William Machen
The Euro jumped in the European session as risk appetite returned to the market. The Euro currently trades around 1.27. The tug of war between traders and Bank of Japan is continuing to intensify as Yen trades below a pivotal 85.00 threshold. The British Pound moderated to 1.5370 as economic data continued to disappoint.
The AUD And The Australian Economy
The Australian economy is continuing on rolling which is positively reflected in the price of Aussie. The Down Under currency appreciated to 0.90 on stellar economic figures. Retail Sales rose to 0.7% beating the expectations of 0.4%. Meanwhile, current account figures dropped by a smaller amount than anticipated printing at -5.6B versus -6.2B. The following figures confirm an expansionary phase in the economy despite the highest interest rates in the G10 universe. The only problematic scenario currently arising is the probability of inverted yield curve. An inverse yield curve tends to forecast a recessionary scenario roughly six or more month after initiation. In the United States, the inverted yield curve forecasted a recessionary scenario; however, the following took place couple of years after. Given the robust growth in the Australian economy an inverted yield will be hard to artificially bring down.
The Yen And The Bank Of Japan
The Japanese Yen is continuing to act as a tool of a tug-of-war between traders and the Bank of Japan. While, the Bank of Japan is highly desperate to depreciate the Yen, the traders believe that the means to bring down the Yen from current highs are scarce. The traders believe that the Bank of Japan’s quantitative easing program along with other alternative measures to spur the economy is diminishing the arsenal of the central bank. The Yen remains above critical pivot point of 85.00. For the time being, the level remains a pivotal battleground as a small victory for either the traders or the central bank can prove to be catalysis for a larger move. If the traders prevail the Yen can appreciate to 80.00 against the greenback, while central banks victory will push the Yen back to normalized levels of 90.00.
The Euro And The European Economy
The Euro found some support against the greenback on the back of positive economic figures from Germany. Unemployment in Germany dropped by 17,000, while July figures were revised lower to a drop of 21,000. The following confirms a positive growth in the German economy, which generally tends to rub off on the whole European economy. There is a relatively strong correlation between the German and European economic data. In tantrum, the European economy should see a turnaround in the economic figures as German data continues to print positive figures.
The Calendar slightly heats up today causing some robust movements in the currency market. Chicago PMI figures will be printed around 9:45AM EST which foreshadow a slight slowdown in manufacturing activity. Chicago PMI figures are expected to print at 3.8%. CB Consumer Confidence figures will also be released around 10:00AM EST; the market is looking for a reading of 50.7, a slight rise from the previous month. All eyes will be focused upon FOMC minutes which are expected to be released around 2:00PM EST.
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