lundi 22 janvier 2007

Yen Weakness Still Present

Analysis by:

Johan Ditz Lemche
Market Strategist
Saxo Bank

The FX Strategy Team consists of:

Kristian Siggaard-Jensen
Market Strategist
Saxo Bank

See the full Strategy Team here

Email the Strategy Team
Published: Jan. 22 2007, 13:02 GMT

The Japanese currency extended losses across the board as BoJ officials restated that keeping rates on hold was the right decision for the moment. USDJPY rose to four-year high ahead of Yellen speech.


Friday we saw the preliminary January figures from the U. of Michigan Consumer Confidence out at 98.0 vs. 92.3 expected. Initially the EURUSD fell but was rejected at 1.2915 and after testing 1.3002, the pair closed at 1.2966. Today the dollar has stengthened ahead of Fed's Yellen's speech on expectations that we will see a restatement that the labor market provides a serious risk of inflation, which have made traders pare their bets that the Fed will lower rates in the near future. We will especially pay attention to the release of the Durable Goods Orders on Friday and in particular the release of the US growth figures on January 31st. Today we only expect the release of the Leading Indicators at 15:00 GMT, December figures expected at 0.2%, to have limited effect as focus will be on the announcements from Yellen. We still favor the EURUSD lower, and we are looking for a break of 1.2870 to the downside.

We also still favor the EURJPY higher, as the euro not is that exposed to geopolitical risks as the USD, which we saw on Thursday as the dollar reacted fell on the news regarding Iran. We have published a trading strategy for this cross, which is visible in our 'Trading Strategies', located under the 'Research'-menu in the Trader.

From Friday:


The December US Headline CPI rose yesterday as we expected, but we did not see any upside surprise in the Core rates. The Headline came out at 0.5%/2.5% vs. 0.4%/2.4% expected while the core came out at 0.2%/2.6% as expected. At the same time, we saw solid figures from the US Housing Market, where the building Permits and Housing Starts surprised the market to the upside. Initially EURUSD fell below 1.2900 but was rejected and came back somewhat despite a solid expansion in the January Philly Fed - out at 8.3 vs. 3.1 expected. The prior were also revised higher to -2.3 from -4.3. We believe that the geopolitical tension between US and Iran and together with the announcements from Fed's Bernanke that the economy could be in a 'fiscal crisis' in the coming decades should it fail to deal with the rising costs of the Social Security, Medicare and Medicaid programs. In the Euro-Zone no important data was released, but Bundesbanks Meister said that he still sees the E-Z rates 'very low', and the ECB will take action if necessary, taking the EUR higher. We don't expect the ECB to be in a hurry with raising rates, and still support a lower EURUSD, selling at the break of 1.2870, targeting 1.2820.

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