Euro: Is the Rally Over? (page 2 of 2)

This is the only reason why the British pound is higher because the UK economy faces the same risks as the US. Job losses are continuing to build and many of the layoffs in the financial sector are expected to happen in London. The housing market is also in trouble. According to the UK Times, Morgan Stanley predicts that one in ten homeowners will face negative equity. As house prices continue to fall, the amount of money that homeowners owe on their mortgages could be more than their home is worth. Looking ahead, it will be a very busy week for the British pound with the minutes from the latest monetary policy meeting due for release along with retail sales and GDP. As house prices fall and the labor market deteriorates, consumer spending could suffer.

Commodity Currencies Face 2 Rate Decisions

The commodity currencies have been mixed today with the Australian dollar slipping on the back of softer gold prices and the Canadian dollar rising on stronger oil prices. The fact that gold is falling tells us that risk appetite is improving because gold is often times seen as a safe haven during times of a recession. The move in the comm. dollars conflicted with economic data because Australian import prices increased more than expected while Canadian leading indicators and wholesale sales both deteriorated. In the week ahead, the Bank of Canada and the Reserve Bank of New Zealand will be conducting monetary policy meetings. The BoC is expected to cut interest rates by 50bp while the RBNZ is expected to leave them unchanged. Aside from the rate decisions, Canada will also be releasing their retail sales report while Australia will be reporting producer price growth.

Stock Market Rally Drives Yen Crosses Higher

All of the Japanese Yen crosses rallied on the back of the 200 point rise in US stocks. Risk appetite continues to be the dominant driver of the Yen crosses and will continue to be in the coming week. Bank of Japan Governor Shirakawa said today that he believes growth will regain momentum after a temporarily slowdown. The price action in the Yen indicates that the market does not believe him. Japanese consumer prices are due for release next week and given the recent strength of the Yen, CPI growth is expected to slow.