JPY G-20 no comment on yen
EZ PPI sharply higher
UK Rightmove at double digit pace
US LEI on tap expected up 0.2%
Lack of any commentary from Jean Paul Trichet on G-3 currencies following the end of the BIS meeting in Melbourne, disappointed FX traders as the week started and the yen gave back nearly of all its gains from Friday. Yen bulls were looking for Mr. Trichet to address the ever growing imbalance in the yen rate against both the dollar and the euro, but the ECB chief ignored the subject matter and focused strictly on the need to remain vigilant against inflationary pressures. The yen was further hurt by a Reuters report, so far unconfirmed officially, that the Japanese government will downgrade its economic outlook in its monthly November report as a result of softer than expected consumer spending. Were this to be true all expectations for a near term rate hike will be swept aside and the yen could see further weakness before the year end.
In the Euro-zone Producer Prices rose sharply at 0.3% versus 0.1% projected driven by higher demand for non-ferrous metals. Ex-energy the gain was an even higher 0.6% and suggests that despite muted headline inflation numbers underlying price pressures exist, confirming Mr. Trichets hawkish stance. The combination of better than expected Eurozone data and disappointment from both Melbourne and Tokyo helped push the EUR/JPY to a new 8 year high of 151.69, blowing away all remaining option barriers at 151.50. The EUR/JPY assent has clearly entered into parabolic territory and the nonchalance of EZ monetary officials aside it will no doubt invite words of concern from EZ Finance Ministers. The regions growth is highly depended on its export sector which is losing competitiveness with every yen rise in the EUR/JPY rate. When the correction in the pair comes, it will, as usual, be vicious and swift, but for now the momentum traders have the advantage and if the fundamentals on the yen side deteriorate, EUR/JPY will continue it inexorable climb higher.
Meanwhile in the US, the holiday shortened week has LEI on the docket today, expected to increase 0.2% its second monthly gain in a row. Generally, US event risk for the week is very limited while the European calendar has more significant releases, including IFO at end of the week. This may be one of the few times in the year when trade in the pair is driven more by EZ data flow than US news. Nevertheless, while US calendar is sparse, the greenbacks fate is likely to be tied to the strength of US consumer spending during the Christmas holiday shopping season. Dollar bulls argue that with near full employment, dropping energy prices and an unusually mild winter in the Northeast, US consumption will maintain a healthy pace despite the slowdown in the housing market. Given our highly unscientific survey of Manhattan streets over the past weekend which were mobbed with shopping activity, the bulls may well be right.
