Bank of Japan Not Expected to Raise Interest Rates (page 2 of 2)

Despite the prior strength of the Euro, industrial orders increased 4.4 percent in the month of June, which was the largest increase in 18 months. The current account also jumped back into positive territory after dropping the prior month. The final release of second quarter GDP is the only piece of data on the Eurozone calendar tomorrow. The market has a pretty good grasp of what the Fed may do in September and now it is just a matter of figuring out what the European Central Bank will do. The best case scenario for the health of the European economy would be if the ECB stands pat, but that may not be the best outcome for the Euro. The lack of comments from ECB President Trichet in recent days suggest that he is digesting the recent moves in the credit markets just like the rest of us and will probably be basing his decision on whether the markets stabilize. Meanwhile Switzerland has trade balance and employment data out tomorrow. Swiss data has had the habit of surprising to the downside, but that has not mattered to a market still focused on carry.

Strong Gains in British Pound Following Hot Manufacturing Data

The British pound rallied strongly today following news that factory orders hit the highest level in 12 years. Even though more firms reported shrinking demand from abroad, the jump in the export and price indices pushed the overall index back into positive territory. Over the past few days, we have seen multiple reasons alluding to why the Bank of England has not done much to help stabilize the UK financial markets. Even though the economy is vulnerable, for the time being, it remains stable. Traders were also relieved after the Bank of England downplayed the recent usage of emergency loans. They said that the line of GBP314 million was small and not unusual. Apparently over the past year, the facility was tapped 13 times with the largest amount borrowed being GBP4 billion.

Canadian, Australian and New Zealand Dollars All Rally as High Yielders Recovery

The Canadian, Australian and New Zealand dollars continued to move in lockstep this morning. Yesterday, all three currencies weakened against the US dollar and today, they all rebounded relatively strongly. There was no New Zealand or Canadian data released, but Australia reported stronger than expected leading indicators and higher skilled vacancies. The Reserve Bank of Australia also continued to inject liquidity into their financial system, showing their commitment to ensuring stability. The sustainability of the stock market rally will determine whether these high yielding currencies will continue to recover.