British Pound: Watch Out for More Housing Market Problems (page 2 of 2)

The currency first rallied on the stronger inflation report, then slipped following the release of the dollar positive ADP report, and resumed its rally after Bernanke's comments. Inflation is hot which is hardly a surprise given the rise in food and energy prices. We had previously indicated that the Euro's strength could reverse if German banks begin hemorrhaging losses. Yesterday Deutsche Bank reported additional write downs and today WestLB announced $2.5 billion in losses. Yet German growth is only expected to slow modestly according to the German DIW economic institute which downgraded its growth forecasts by only 0.1 percent to 2.0 percent. Eurozone retail sales are due for release tomorrow. The steep drop in German retail sales suggest that we could see a similar decline in consumer spending for the entire region.

Australian, New Zealand and Canadian Dollars Rebound

The New Zealand Dollar, Australian Dollar and the Canadian Dollar, rebounded against the mighty greenback thanks to a recovery in commodity prices. Traders did not have much to key off of today, but the next 24 hours could prove to be much more eventful, with Australia releasing their service sector PMI figure which is anticipated to decline, as high interest rats would likely result in falling business demand. New Zealand is set to release the ANZ Commodity prices, which should increase as demand for soft commodities continue to rise. Although Canada has no releases tomorrow, investors are eagerly anticipating for the end of the week, when some major market moving data are set to release, starting with the unemployment rate and ending with Ivey Purchasing Managers Index.

Japanese Yen Extends Losses on Little Economic Data

All of the Yen crosses have rebounded today despite little Japanese economic data. Compared to a few weeks ago, risk appetite has certainly improved. Gold prices are well off its highs, but as we all know, risk appetite can change on a dime. Non-farm payrolls will be critical in determining whether we see a more meaningful rally in carry trades. Although we could still see a further bounce, the longer term trend for USD/JPY and other the Yen crosses, is still down.