Euro: Ready for a Breakout (page 2 of 2)

For the most part, the central bankers felt that inflation will continue to rise in the coming year and growth will slow. Their perspective on the Euro is probably best described by Wellink who said that the currency's recent rise is not an "immediate concern," but a further rise will be "worrying." This suggests that a breach of 1.50 may force them to act either verbally or physically.

British Pound: Licking Its Wounds

The British pound licked its wounds today after difficult trading over the past few weeks. The UK economic calendar is light with no numbers due for release until Thursday. This suggests that pound strength or weakness will be largely contingent about the market's demand for risk as well as Eurozone and US economic data. Bank of England monetary policy member Bean left us some food for thought this morning when he said that the current level of inflation may necessitate tighter monetary policy. The market is currently pricing in 75bp of easing by the middle of next year. If we hear similar comments from the BoE again, then a repricing of expectations may be warranted.

Risk Aversion Sends Australian, New Zealand and Canadian Dollars Lower

The Australian, New Zealand and Canadian dollars continue to fluctuate within wide trading ranges with one day of gains being followed by another day of losses. Today, we are trading near the bottom of the range which means that the currency pairs will either break down against the US dollar and suffer sharp losses or revert back to their trading existing ranges. Commodity prices are basically unchanged today but they too are trading near pivotal levels and as a result we would not be surprised to see the trading ranges broken this week.

Japanese Yen Crosses Tumble on Equity Market Weakness

With the Dow tumbling over 200 points, it would be surprising if carry trades actually managed to stay in positive territory. All of the crosses are down sharply and USDJPY is now trading at a fresh 2 year low against the US dollar. News has surfaced that China may be planning to invest some of their FX reserves into Japanese stocks. Supposedly their request was denied but when the CIC was contacted later, they said that no decision has been made yet. The bottom line is that China is actively looking for ways to diversify their reserves which will be positive for the currencies of countries outside of the US that they do a lot of trade with China such as Japan.