JPY Watanabe BOJ unlikely to raise rates
EZ French wages in line
EZ Trade Balance deficit shrinks
US Housing data on tap
A very quiet night of trade in the FX markets with absolutely no releases our of Japan and UK and only a smattering of second tier data from the Euro-zone. The most exciting event of the night was the game of which Watanabe, as a Bloomberg story overnight quoted the Japanese official stating that he did not think that BoJ would hike rates this year. The Watanabe in question turned out not to be Hiroshi Watanabe, the vice finance minister for international affairs, known universally as Mr. FX, but rather Yoshimi Watanabe who is the vice minister in the Cabinet office and is a considered to be an up and coming member of the LDP. USD/JPY rose initially on the comments, but after the confusion was resolved it drifted sideways for the rest of the European session.
In the Euro-zone the economic news was modestly positive with French wage data meeting expectations of an 0.8% rise. The service sector component specifically showed an impressive gain, jumping 0.9% versus 0.5% the period prior. However French job growth was relatively anemic increasing only 0.1% versus 0.3% forecast. Finally Euro-zone trade balance deficit shrank greater than projected printing at -0.9 Billion euros versus -2.0 Billion euros consensus. The news had virtually no impact on the pair as EUR/USD bounced between 1.2775 and 1.2790 for most of the night.
The greenback has found a bid over the past 24 hours despite less than stellar US data as both CPI and TICs came in below expectations while the rebound in the Philly Fed number was highly deceptive with most of the subcomponents showing further deterioration. The primary driver of dollar strength was attributed to the bounce in the NAHB index which rose to 33 from Octobers low of 31. The bull case rests on the assumption that housing has bottomed and consumers fueled by higher wages and lower mortgage rates will flock back to the market. Needless to say we remain highly dubious of such sunny scenarios given the vast oversupply of inventory on the market. Furthermore, the NAHB is nothing but a sentiment gauge whereas todays Housing Starts and Building Permits figures will show if the builders are willing to put their money where their mouth is. The market expects a sharp drop from 1772K run rate to 1680K. If housing starts retrace less than the market expectations dollar bulls would have some tangible evidence to support their rebound scenario. If however, the news is as dour as the market believes the dollar will have a hard time making much headway against the euro as the Goldilocks argument will suddenly seem less golden.
Finally, with few economic releases on the calendar traders may focus on the upcoming G-20 meeting in Melbourne this week-end. Although the participants are not expected to make currency specific statements, there is an underlying speculation in the market that the ministers may make some comments regarding yen weakness. As weve noted before the yen needs to see action rather mere rhetoric in order for the carry trade unwind to commence in earnest, nevertheless a concerted effort by global fiscal policy makers may be enough to trigger some sales in USD/JPY at the start of next week. Meanwhile the rest of the day looks to be as quiet as the night unless US data surprises to the upsides generating more momentum for dollar bulls.
