Euro: Still Headed for All Time Highs (page 2 of 2)

Despite the slowdown in the global economy, the advance release of Eurozone PMI indicates that the economy is still holding strong, which may lend a bullish tone to next week's economic data. Traders will be looking to the German IFO report, retail sales, unemployment and the Euro-zone retail PMI and CPI figures for further clues to when the bank will begin to cut interest rates. Comments from ECB member Gonzalez Paramo today suggests that any rate cut from the ECB will not come until the second half of the year. Like some of the other members of the central bank, Gonzalez Paramo believes that "all in all the fundamentals of the euro zone economy remain sound." The futures market is still pricing in 50 to 75bp of easing by the ECB in 2008, but the price action in the Euro has yet to reflect that sentiment.

British Pound: Can the Gains be Sustained?

After yesterday's strong retail sales number and blockbuster recovery in the British pound, the currency continued to see a broad based recovery. The outlook for the British pound has become extremely uncertain with a hawkish Quarterly Inflation report, strong retail sales and an upside surprise in employment conflicting with the dovish minutes from the most recent Bank of England meeting. That is why next week's UK GDP, housing numbers and GfK consumer confidence will be very important because they provide more information on the recent health of the UK economy.

Carry Trade Recovery Limited by Continued Volatility in Equities

News that a bank bailout plan for bond insurer AMBAC will be announced Monday or Tuesday triggered a 200 point reversal in the Dow. Unsurprisingly, the move had only a limited impact on carry trades. Although the correlation between carry and equities is continue to fade, the one thing that remains unchanged is the fact that the volatility in the equity market is a big reason why carry trades have been unable to muster a sustainable rally. This relationship should be the main focus of Yen traders. Meanwhile there will be a lot of Japanese economic data due for release in the week ahead including retail trade, industrial production CPI and overall household spending. These reports should only have a limited impact on the Japanese Yen.