Top Market Movers: EURJPY, NZDJPY, CADJPY

EURJPY

Euro losses seen earlier in the session purported losses against the Japanese major for the day, bolstering heavy selling in the cross pair. Although relatively slow for a session in the middle of summer, the Japanese major was bolstered by further Chinese yuan speculation in the overnight. With CNY trading near record levels against the dollar, traders anticipated a ruling by Chinese officials to allow a more flexible domestic currency in the near tem. Additionally, plenty of news was released as key members of the US Congress reiterated intentions to revive the Schumer-Graham bill, levying an approximately 25 percent tariff on all Chinese imported goods. Should the bill be revived, market sentiment is expecting a rising push for further flexibility in the economy's currency coming from the US.

This action will likely benefit the Japanese yen as FX traders continue to make use of its proxy feature to the Chinese yuan. Coincidentally, three month yen libor rates are hovering record levels for the time being as continued rate speculation looms over the contracts. However, looking ahead, the move may be shortlived in the near term as the European Central Bank is likely to boost rates another 25 basis points in order to curb current inflationary pressures. The decision is likely to sway some interest back to the Euro leg as the decision once again widens the rate spread between the two economies.

NZDJPY

The Kiwi joined the majors on the session, declining against the Japanese yen following the overnight's decision to keep rates steady at the current 7.25 percent rate. Although the decision was widely expected by the market, the subsequent dovish comments gave sellers the confirming heads up. Recognizing that rates of inflation were high, the central bank essentially stated its intent and expectation that pressures would abate in coming quarters. As a result, market participants are tipping the scale to any directional and decisional bias to most likely happen at the end of the year or earlier in 2007.

This notion weighs heavily on the underlying currency as downward pressures are already building on a mounting economic deficit. Currently, the trade deficit is equivalent to almost 10 percent of overall growth. Subsequently, the cross continued to be under pressure, topping our list for the largest percentage loser, as a better than expected US durable goods orders report handed a losing bid for the Kiwi major. The major selling facilitated shorting in crosses even as the carry trade continues to favor the Kiwi side. Moves are subsequently limited at this point as we head into the Asian session with nothing but Japanese data expected in the overnight.

CADJPY

The same combination of reasons bucked a CADJPY advance as both Chinese revaluation and a better than expected US durable goods orders report took the cross pair lower throughout the session. Despite a viable short squeeze in the afternoon and higher crude oil prices, traders took the pair lower on the simple fact that rates are likely to stall in the Canadian economy. Since the decision to leave rates alone at the current level, the Canadian currency outlook has been somewhat noncommittal, keeping the underlying major contained in the range scenario for some time now.

According to Bank of Canada Governor David Dodge, inflationary pressures have abated slightly with wage cost levels remaining adequate. The statements, of course, purported speculation that rates are likely not to rise any further given the current spot valuation in the near term. Comparative to the Japanese yen, which is likely to continue their newly founded tightening stance, the Cad leg seems to have little to underpin strength in the short term. Looking ahead, further declines may be in the works, considering the positively anticipated release of both consumer price data and retail trade figure in the overnight.