EUR/USD headed higher at the start of London trading pushing up to the 1.4180 level before meeting with resistance. The better start for the EUR this morning raises the risk of a move back towards the 1.4250 area.
However, with little scheduled incentives ahead of tomorrow's FOMC decision, it seems likely that current ranges could persist.
The JPY has given back much of its Asian gains vs the EUR and the 'risky' AUD. The JPY's overnight strength vs the USD and GBP also moderated in European hours.
The move away from risk overnight was triggered by disappointing Chinese economic data. While July industrial production rose an enviable 10.8% y/y, this compared to a median forecast of 11.5% y/y. The 23% y/y drop in exports in July , while expected, enhanced fears that the rapid expansion in the Chinese economy cannot be sustained unless demand picks up in the US and other major economies. As expected the BoJ left interest rates unchanged, with Governor Shirakawa commenting that any recovery in Japan is likely to be weak. The Bank of Korea also left rates unchanged as expected. As in China and Japan, the outlook for global demand remains crucial for the outlook for the S.Korean economic recovery.
UK economic data this morning were mixed. The visible trade deficit widened to a larger than expected -6.451bln in Jun. While exports to the EU did increase by 4.8%, suggesting some support from the relative soft level of GBP vs the EUR, clearly the impact is not dramatic. UK housing market data showed further signs of stabilisation. The RICS survey balance was at its least bad level since August 2007 while the Council of Mortage lenders reported a 23% m/m rise in loans for home purchases in June. Sterling is trading on a softer note vs the USD, the EUR and the JPY with this morning's data overshadowed by the BoE's Inflation Report due tomorrow and the fear that it will contain another serving of gloom to match last week's surprisingly large increase in QE.
The NOK has won back some ground today following yesterday sell off vs the EUR. Weaker than expected Norwegian CPI data yesterday dashed hopes for a quick turnaround in interest rate policy, though Norwegian CPI can be volatile. The Norges Bank is expected to leave rates unchanged tomorrow but a relatively upbeat economic assessment could see hopes for a rate hike by year end strengthened.
Canadian housing starts and US productivity data are due this afternoon. The start of the FOMC meeting is likely to overshadow today's data offering.
