Euro Breaks Higher as Market Shifts Focus to ECB (page 2 of 2)

EUR/JPY hits record high

The Dow Jones Industrial Average was up more than 100 points following the FOMC rate decision. Even though it erased all of those gains, the Japanese Yen crosses ended the US trading session near its highs.

EUR/JPY was the best performer. The currency pair hit a record high thanks almost entirely to Euro strength.

With central banks around the world turning hawkish, carry trades are back in the limelight. The Japanese merchandise trade balance was released last night.

It was stronger than expected as accelerating shipments to Asia helped to offset softer demand from the US and Europe. The corporate service price index also accelerated, reflecting growing inflationary pressures.

There is no significant Japanese data due for release this evening, but things will pick up tomorrow when retail sales and consumer prices are scheduled for release.

US Dollar weakness sends Australian, New Zealand and Canadian dollars edge higher

Despite a drop in commodity prices, US dollar weakness has sent the Australian, New Zealand and Canadian dollars higher.

The only piece of economic data released from the three commodity producing countries was New Zealand, who reported the lowest level of consumer confidence in the history of the series, which was created back in 1993.

Over the next 24 hours, we are expecting the New Zealand current account balance, and the Australian Conference Board index of leading indicators. Both numbers have a chance of surprising to the upside which should help to fuel further gains in the Aussie and Kiwi.

UK retail sales may reverse

The British pound was at the whim of the US dollar and Euro today with the CBI Distributive trades survey failing to motivate any meaningful action in the currency.

Last month, retail sales were very strong, but next month, consumer spending could falter. Even though the CBI retail sales index was less negative than the last two months, sales expected for the month of July plummeted.

In other words, retailers do not believe that the strong pace of growth reported last month can be repeated next month.

Like the US dollar, the pound has fallen victim to the prospect of higher interest rates in the Eurozone and stagnant rates in the UK.

Although inflation is more than a full percentage point above the Bank of England's 2% target, the lack of definitive strategy on interest rates is hurting the British pound.