JPY CGPI eases dampening chance of rate hikes
GBP UK CPI prints hotter suggesting wage pressures
EUR ZEW improves but produces no reaction
USD FOMC announcement in the afternoon
A herky-jerky, directionless session so far in the currency markets tonight as traders square up positions ahead of the upcoming FOMC meeting at 19:15 GMT. The yen continued to suffer from carry trade flows, as domestic CGPI data revealed that prices contracted 0.1% on a month over month basis reinforcing market consensus that BOJ may pass on a rate hike at its final policy meeting of the year on December 18th. The EUR/JPY cross hit yet another record high in overnight trade taking out the 155.00 figure.
The yen right now is the Rodney Dangerfield of the G-3 currencies as the market ignores any positive rhetoric from BoJ awaiting concrete action from authorities rather than mere talk. This Fridays Tankan survey may well be the last refuge of yen longs, but ironically enough with the unit so grossly oversold on seemingly limitless carry trade optimism, the possibility of a sharp rally in the yen becomes stronger with every tick lower. While the market focuses on the Japanese side of the pair, the surprise in yen strength may come from the USD component if the Fed hints of any ease or even signals definitively that it is moving towards a neutral stance from its present tightening posture. Still, presently any attempt to get long yen remains a futile exercise in picking a top. Until such time that that Japanese rates actually increase or conversely US and Euro-zone cease rising and begin to contract, yen weakness will persist.
Meanwhile, the ZEW survey printed better than expected at 63.5 versus 55.3 consensus as the German current assessment component hit an all time high. However, with the ZEW having near zero predictive ability over the euro in the past year (it produced consistently low readings while EUR/USD rallied) the market promptly ignored the results and EUR/USD actually traded down a few points.
