US Dollar / Japanese Yen (USDJPY) - Not out of the Woods (page 2 of 2)

The market was originally looking for sales growth to slow from 3.1 percent to 2.3 percent. This upside surprise suggests that we could also see stronger consumer confidence in tonight's Nationwide confidence report. However it will not provide enough reason for the Bank of England to raise interest rates this week. Whenever they leave rates unchanged, there is no accompanying statement, which means that the rate decision will be a nonevent.

Japanese Yen - The rebound in the Chinese stock markets have led to a correction in the Japanese Yen. There was no Japanese data released last night which indicates that the latest move in Yen was driven by market flows. The move represents a long overdue correction for the Yen crosses, but before getting too excited, it may be premature to look for a major reversal. There has been widespread debate on whether the recent move in the Japanese Yen was a result of the liquidation stopping out carry traders or carry traders actually unwinding their leveraged bets. Either way, with the market so short Yen over the past few years, we are certain that more people have been burned in this latest move than the people who profited. Therefore, they will be far more reluctant to jump back into the market and take the currencies back to pre February 23rd levels. Risk aversion has put an abrupt stop to the party and it is unclear how quickly the partiers are willing to come back. In the long run however, the sharp rally in the Yen will force the Bank of Japan to delay their plans for further tightening.

Commodity Currencies (CAD, AUD, NZD) - The Commodity Currencies managed to ebb higher today as Aussie and Kiwi - the whipping boys of the recent carry trade liquidation - bounced from Asian session lows ahead of potential monetary policy action this week while USDCAD worked down from the 1.1800 level. The Australian trade deficit for January narrowed much more than expected to A$876 million on export growth and a slowdown in imports, which propelled the AUDUSD pair back above the .7700 level. In New Zealand the calendar was empty but the run up to the RBNZ's monetary policy decision could find Kiwi bid as a hike to 7.50% is widely expected and would put the recently-taboo carry trade significantly in the New Zealand dollar's favor. Canadian data has been quite strong over the past week, and today was no exception as building permits surged 11.3%. However, the marquee event for Loonie was the BoC decision. Although the central bank stayed pat at 4.25%, the statement accompanying the decision had a slightly hawkish leaning with Governor Dodge and Co. citing underlying strength in the economy and "roughly balanced risks" to inflation projections.