AUD Retail Trade soft 0.1% vs. 0.5% eyed
DEM Unemployment falls sharply to -67K from -23K forecast
DEM Oct PMI 67 vs. 56.6
ECB on tap with rate announcement
Comments from Hiroshi Watanabe propelled the yen higher in early European trade today when Mr. FX once again stated that there was no reason for the yen to weaken given Japans economic recovery. In response the yen dropped below the 117.00 figure against the dollar and traded through the 149.00 level against the euro. It appears that the near term solution of Japanese monetary authorities is to gently jawbone the USD/JPY lower in the absence of any meaningful increase in interest rate policy. For the time being the strategy is working as the market responds to Mr. Watanabe coldly calculated comments. However, unless the BoJ actually intends to back up their actions with another 25 basis point hike in December or January, Mr. Watanbes words will begin to be seen as more bark than bite with the currency market demanding action rather than mere rhetoric.
The problem is further complicated by Japans own contradictory attitude towards exchange rates as the export driven country clearly would like to maintain relative yen weakness to further spur economic growth while at the same time avoiding the wrath of its trading partners in Europe and US. That conflict was exemplified by the news that Kampo the Japanese Post office and the largest financial entity in the world was on the bid tonight at 116.80 which helped to stem yens slide. In short, the recent change of market sentiment against any further tightening by US monetary authorities has clearly helped the Japanese currency over the past week as carry trades have started to unwind, but in order for the unit to see additional upside progress, Japanese officials will have to actually implement policy changes to further impact the market.
Meanwhile EZ data proved buoyant once again with German unemployment and EZ PMI Manufacturing data beating expectations, but the currency hardly budged as all eyes are on the ECB interest rate announcement due today 12:45 GMT. The fact that ECB is expected to stay pat will likely be viewed as negative as the central bank will have only one more opportunity to t9ghetn rates this year. However real trading will most probably be driven off Mr. Trichets post announcement comments. If the ECB chief hints that rates may be ratcheted up beyond the 3.5% barrier, the euro could get a boost.
