The resurgent yen

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Forex Daily Table February 22 2013Data/Event Risks

  • EUR: The euro has done relatively well this year because it’s not directly involved in the so-called currency war and also the ECB’s balance sheet is getting smaller. This is why watching how much banks repay of their long-term loans is important, because a large amount means higher market interest rates and a higher euro.
  • CAD: Note that inflation and retail sales data are released at 13:30 GMT. Market looks for headline inflation to move lower to 0.6%, whilst sales are seen falling in December on MoM basis.  USDCAD has seen 5 straight days of gains.

Idea of the Day

It was very telling yesterday that the yen was the best performing currency just as the dollar putting in a strong performance. Does this mean that the Japanese currency is back to trade like a ‘safe haven’ currency? In summary, there’s only some truth in that. More important is the fact that the Japanese authorities have backed off from overtly talking their currency lower (with some subtle pressure from the G7) and also from buying overseas bonds as part of their quantitative easing strategy.

The yen is not the “no-brainer” it once was, which is in part why investors are now rounding on sterling.  The Japanese authorities have been more talk than action. The UK has been the opposite, having effectively softened their inflation target and seriously debated further quantitative easing. They may not have wanted or expected the strong currency reaction we’ve seen (down 2%), but it’s not at all surprising

Latest FX News

  • EUR:  The final GDP data in Germany was in line, so keeping the single currency steady at the start of the European session.
  • JPY:  Slightly softer overnight after the gains seen through most of Thursday, but overall USDJPY sits near the bottom of the range of the past two weeks, reflecting a reduced fear that the Japanese are going to actively depreciate their currency further.
  • GBP: Thursday could best be described as a “dead-cat bounce” after the slump in sterling seen on cable.  The technical picture continues to look poor vs. the USD.

Further reading: Forex Analysis: EUR/USD Head-and-Shoulders Pattern Breakdown

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