CHF unemployment steady
EZ Retail PMI bit better but still signals slowdown in growth
UK Retail Sales better than expected
EZ IP contracts
US calendar empty midterm election is story of the day
BoJ Governor Fukui today stated that We will take action in advance, moderately, to avoid drastic reactions. We will adopt a forward-looking approach. Those comments helped propel the yen higher as traders speculated that the central bank may be ready to raise rates before the year end. Although recent economic data from Japan has been relatively lackluster reflecting the overall global slowdown in demand, the countrys unnaturally low interest rate of only 25bp has attracted enormous amounts of carry trade flows against the currency, pushing the EUR/JPY rate above the critically important 150 level. Japanese officials cognizant of the deep discomfort on the part of their European counterparts at the lofty levels of euro against the yen have tried to jawbone the exchange rate lower. Last week Hiroshi Watanabe, Japans top FX official stated that there was no reason for yen to weaken further. However Mr. Watanabes remarks had little lasting impact on the market as traders dismissed them as mere talk. Tonights statement by Governor Fukui appears to be an effort by Japanese officials to finally back their words with action. Should BoJ raise rates before the year end, the yen may rally higher as carry trade liquidation takes hold in earnest.
Further evidence today that global economic growth is slowing as EZ Industrial Production slipped to 0.3% from 0.1% expected. The drop was no doubt impacted by euros persistently high exchange rates and a slackened demand from US. EZ Retail Sales also disappointed dropping 0.6% from 0.4% consensus as EZ consumers refused to increase spending despite a markedly better employment environment. News may not be as bleak next month since Octobers Retail PMI figures recorded a pick up in activity that should be reflected in the upcoming figures. Nevertheless, the consistently weak performance of the EZ consumer sector bodes badly for future EZ growth and suggests that ECB may not raise rates beyond the 3.5% target rate.
For the rest of the day however, economic news will be swept aside as traders focus on the key event risk of the week US midterm elections. Tradesports.com shows some last minute slippage in GOP retention of the Senate. If Democrats obtain a clean sweep of Congress further dollar weakness is quite likely as the shift in power will send capital out of US until speculators can better assess any long term risks.
