· JPY Inflation tame <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
· EUR M3 reaches near double digit growth
· GBP BBA <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Mortgages plunge
· USD Durable Goods, housing on tap
Yen lost whatever strength itgathered over the past two days after Japanese core CPI printed at 0.1% versus 0.2% expected. The news sparked the return of the carry traders and sent USDJPY once again above the 121.00 figure to within 10 points of the weeks high. At present , USDJPY remains a hopeless victim to the carry, as Japanese economic data refuses to provide any meaningful support for yen bulls However, despite todays tepid inflation numbers the fact of the matter is that core inflation registered its first positive reading in this decade and if that price momentum continues, real interest rates will become negative a scenario the BoJ will assuredly wish to avoid. In that context Ms. Sudas observation yesterday, that BoJ needs to be more pro-active regardless of immediate economic results should serve as warning to the multitude of yen shorts. The level of complacency in that trade has reached extremes and while USDJPY can certainly push higher still, the likelihood of a sharp correction grows stronger every day.
In Europe today, the EURUSD continued to drift lower in the aftermath of softer IFO readings and a jump in US long term rates which reached their highest level in 5 months. Some analysts are also referring to Greg Ips article in WSJ that the Fed will reiterate its hawkish bias towards rates next week as another reason for euros weakness. Overnight data was actually euro bullish. M3 data grew at near double digit levels inviting expectedly hawkish comments from Axel Weber. Barring any material slowdown in demand, the ECB looks to be on schedule to deliver another rate hike in March given the ample liquidity in the system. However, for now the market wants to test the support for the pair by probing this weeks lows near 1.2865 and if the upcoming US data proves cooperative it may get there. Before end of trade today.
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