JPY Department Stores perform better
CHF Industrial Production drops less than expected
EUR S.A. Trade Balance better than expected
USD Current Account on tap
A very quiet Sunday night, as the currency market prepares for one final week of event risk before dealing desks the world over empty out for Christmas and New Years day holidays. The yen inched higher into the early European trade as the effects of stronger than expected Tankan results continued to reverberate through the currency markets. After reaching an all time high of 155.50 last week the EUR/JPY cross slipped to 154.06 as traders cautiously unwound some of the latest carry trade positions ahead of tonights BoJ policy meeting. Although almost no one in the market expects the BoJ to hike rates, simply the prospect of a more hawkish communiqué from Japans central bankers may serve as reason enough for further yen rally.
Yen has been grossly oversold as a result of massive one way bets on interest rate differentials and the the carry trade has become extremely crowded. Therefore, it will not take much positive fundamental news out of Japan to prompt an unwind given the enormous skew in positioning. Nevertheless, if the BoJ once again disappoints by issuing a neutral assessment of the economic situation and offers little forward guidance to the market, yen bears could once again reassert their control over the unit and the recent multi-year lows set against both the euro and the pound may not be the last.
In the Euro-zone tonight, the seasonally adjusted Trade Balance reported better than expected at 1.7 Billion versus 0.0 projected. On an unseasonably adjusted basis the gain was the largest since July of 2005 as lower oil prices and healthy growth in exports helped widen the surplus. The Euro-zone export sector continues to defy expectations as it maintains growth rates despite unfavorable exchange rate differentials. Tonights news bodes well for EZ economy in 2007 indicating that the efficiency and productivity of the regions export sector should continue to make positive contribution to GDP growth. That in turn should allow ECB further room for tightening as the year proceeds.
