Carry Trades Rise Ahead of Bank of Japan Rate Decision (page 2 of 2)

He did not say that the Euro was one of the problems and this view continues to be supported by German officials. The latest comments come from Germany's Finance Minister who explicitly indicated that he supports a strong Euro. Unsurprisingly, the German trade surplus narrowed in August. The impact of the currency's rise continues to be more apparent in German data than French data even though the French have been screaming far louder than the Germans about the current level of the Euro. During the same month, the French deficit actually improved. Euro bears should not expect to get any support from the ECB in the near future.

Australian and Canadian Dollars Head Back Towards Multi-Decade Highs

The Australian, New Zealand and Canadian dollars headed back towards their multi-decade highs on the back of a bounce in the commodity markets and renewed demand for high yielding currencies. Canadian and New Zealand economic data supported the move, but Australian data did not. Exemplifying the strength of the economy were Canadian housing starts which hit the highest level since 1979 in September. New Zealand business confidence also improved from -37 to -27, but Australian business confidence dropped to an 8 month low. Consumer confidence from Australia is expected next. The price action of all three commodity currencies supports further gains.

British Pound: Sharp Intraday Reversal

After dropping to a low of 2.0257 at the beginning of the US trading session, the British pound staged a very impressive intraday reversal to end the US trading session well above 2.0350. The move appears to be almost completely dollar driven since it came hours after the release of the UK trade balance. Although the deficit narrowed in the month of August, the improvement was less than the market expected. UK Chancellor Darling maintained the government's 2007 growth forecast of 3 percent, but revised down the growth forecast for 2008 from 2.5-3 percent to 2-2.5 percent. Leading indicators are due for release tomorrow along with the RICS house price index. Both are expected to deteriorate given the problems in the UK financial market and the strain of a strong currency and high interest rates.