JPY All Industry Index improves in line with Tertiary data
EUR Italian Confidence rises
GBP UK GDP at 2 year high
USD GDP on tap along with Core PCE and Philly Fed
A quiet uneventful night of trade in FX so far as mixed economic data and the approaching winter holidays dampened volatility in the markets. In UK GDP data was revised upward to 2.9% from 2.7% originally reported as growth in services contributed to the highest GDP reading in 2 years. The good GDP results however were partially offset by news that the Current Account widened to 9.4 Billion pounds much worse then the 7.8 Billion forecast on weaker income flows. Nevertheless, the latest string of UK economic data has been overwhelmingly positive, showing a remarkable resiliency in the countrys economy. With housing prices continuing to register double digit year over year gains and retail sector improving markedly as evidenced by yesterdays CBI distributive trades report, the BoE may have ample cause to raise rates in the first quarter of 2007. With GBP/USD within striking distance of the 2.00 figure it is quite possible to see dealers try to gun for that level during low liquidity holiday trade next week, especially if US data resumes its trend of weakness. For the time being however, cable marked time at 1.9700 figure buffeted by the offsetting economic releases.
Meanwhile, trading in USD/JPY perked up in early European dealing after the pair set a monthly high at 118.50 yesterday. The yen has been battered relentlessly by carry trade flows as the unwillingness of the BOJ to hike rates beyond 25bp, has allowed traders to sell the unit with impunity. However, the latest batch of Japanese economic news from last week Tankan and Tertiary Activity reports to todays All Industry Activity index have all surprised to the upside. As speculators begin to realize that BoJ will have to make a tightening move sooner rather than later, the stampede for the exists may swell in size as carry trade liquidation accelerates. With yen woefully oversold the potential for a relatively large corrective move exits and tonights 50 point drop to 118.00 may be only the beginning.
Well be gone until January 4th. Terri Belkas will fill in for the meantime. Happy holidays to all.
