Euro: Will ECB Trichet Recognize the Pain? (page 2 of 2)

Canadian Dollar Hits 31 Year High, Australian Dollar at 18 Year High

Commodity currencies performed extremely well today with the Canadian dollar hitting a 31 year high and the Australian dollar rising to an 18 year high. Oil reversed intraday, but gold prices have run up to a 28 year high of $750 an ounce. The Canadian dollar is trading almost exclusively off of momentum. GDP was softer than expected in the month of July while the price of industrial product and raw materials abated. This should have been bearish for the Canadian dollar but rising commodity prices and a weaker US dollar actually drove the loonie higher. IVEY PMI and Employment are due out next week so expect the Canadian to continue to receive big focus. As for the Australian dollar, the rally has now extended for the ninth consecutive trading day thanks to the surge in gold prices. Australia has retail sales and the RBA interest rate announcement next week. Interest rates are not expected to be changed and spending is expected to pare back after a big jump in July. As for New Zealand, the kiwi rose strongly after solid GDP numbers. There is no data due out next week.

British Pound Trading Near 2.05

The British pound continued higher today and came within a whisker of 2.05 despite weaker consumer confidence and news that Northern Rock borrowed another GBP5 billion from the Bank of England. The UK banking sector is still in trouble, but this seems to matter little for traders who are obsessed with selling US dollars. However these problems raise the risk of a surprise interest rate cut from the Bank of England next week. The BoE is notorious for catching the market off guard and given the continued problems at Northern Rock, they may feel the need to ease monetary policy. Aside from the BoE meeting, we are also expecting manufacturing and service sector PMI data.

Japan Still Faces Deflationary Conditions

The Japanese Yen continued to weaken on evidence that deflation remains a problem. Although retail sales increased in the month of August, the drop in consumer prices, rise in unemployment and deterioration in industrial production will prevent the central bank from raising interest rates anytime soon. Next week we have the Tankan due for release. This quarterly report is usually one of the most market moving indicators for Japan. However the Dow seems to be the bigger focus for Yen traders at the moment and we do not expect that relationship to change anytime soon.