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Market Session Recaps

London Session

Fri, Sep 11 2009, 10:23 GMT
by Forex.com Research Desk

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The fx market has been accustomed to a fairly mechanical reaction to strength in stock markets. Higher equities in recent months have heralded the risk trade, which would pressure the safe haven currencies - the USD and the JPY. Asian and European stock indices, with the exception of Japan's Nikkei, are higher this morning. In tune with this the USD index has pushed lower. The JPY, however, has broken the mould and is pushing higher across the board, its biggest gains coming vs the AUD.

The incentive for the move higher in most stock markets this morning stemmed from better than expected Chinese economic data. August industrial production (+12.4% y/y) and retail sales (+15.4% y/y) both came in stronger than expected. Coming on the back of yesterday's comments from Chinese Premier Jiabao that stimulus measures would be sustained, the market has judged the strong data as backing the view that the global recovery would remain on track. In Japan, however, Q2 GDP was revised lower to -0.5% q/q (from -0.2% q/q). These data, in additional to the strength of the JPY vs the USD chased the Nikkei lower.

The downward pressure on USD/JPY extended into the European open with buyers eventually stepping in at 90.71. AUD/JPY has found support at the 78.20 area. The strength of the JPY is inconsistent with the bias towards risk that is suggested by the rise in most equity markets this week. However, JPY strength is in tune with the cautious outlook of the global economy maintained by most central bankers. It also echoes that comments made yesterday by PBoC Vice Predisent Zhu Min regarding the danger of bubbles in stock and real estate. While we do not expect the USD to suffer exception losses moving forward, clearly the USD's questionable qualifications as global reserve currency and the US government's need to finance a huge budget deficit will continue to hang over the USD outlook for some time. An acceleration of losses for the USD would neither be welcomed by the US Treasury (given their finding needs), nor by foreign holders or large quantities of US paper, such as China. This year's lows for USD/JPY stand at 87.13. If USD/JPY edges towards this area, political hackles could start to be raised.

UK data this morning caused little upset for the pound. PPI input data was much higher than expected at +2.2% m/m on the back of the rise on price of petroleum related productions.
However, insofar as on a y/y basis input data is at -7.5% y/y compared with +0.2% y/y for output prices, it seems that producers are still managing to pass on costs. In line with the move in EUR/USD cable moved off its best levels at the European open. However, cable has found decent support and sterling has outperformed the EUR. This week's good production data and steady policy from the BOE are still affording sterling support.

This afternoon The Sep Michigan confidence survey, import prices and wholesale inventories are due.

Published on  Fri, Sep 11 2009, 10:29 GMT

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