Asia bought the dollar and sold the JPY crosses as EUR/USD slipped back below 1.4500 and EUR/JPY traded back towards 166.00. On Friday US non-farm payrolls came in at 166k much better than expectations of 80k. The initial buyers were quickly run over as EUR/USD made new all-time highs. Part of the reason for the weakness in the dollar may have been higher commodity prices as gold traded firmly back over $800 and oil made an all-time closing high. However, we are seeing both commodities trade lower in Asia which could be the reason for the dollar bid in today’s session.
Japan released its minutes from the September Bank of Japan Monetary Policy meeting but the announcement was mostly ignored by the market. With tenuous financial markets and continued weak Japanese data, Japan continues to hold on increasing interest rates. This does not automatically imply a weaker JPY as US banks continue to announce write downs in assets. If we see another wave of risk reduction, expect the JPY crosses to trade much lower. Technically, USD/JPY seems to be sitting on key support as it tests an up trend line on a four hour chart.
Looking forward, expect more volatility as the US continues to release mixed economic data. On the Asia front, we are expecting Australia and New Zealand employment data. Both these countries’ currencies are major components of the carry trade. In the US one of the key highlights and beneficiaries of the weak dollar will be announced: the trade balance. Further, we continue to watch news flow concerning the credit markets and the sub-prime mortgage market.
Upcoming Data Releases (London Session):
- UK: (4:30am ET) PMI Services expected 56 vs. previous 56.7 (relevance: medium). Month over month Industrial Production expected .2% vs. previous .1% (relevance: high).
