As some of you will have noticed, markets in general and the FX markets specifically love to have a dominant theme. Earlier in the year, Euro zone sovereign debt and the solvency of several nations hogged the headlines for months, the spotlight then moved to the general election in the UK and how Sterling was doomed if we had a hung parliament. The US Dollar is currently smack bang in the middle of the circus and is looking at a third consecutive week of decline across board unless we get a major move this afternoon on the back of the release of a bucket load of US economic data including retail sales, CPI and the University of Michigan confidence figures. As we all know, the prospect of another round of QE from the Fed is the reason for the Dollars sharp decline over the past few weeks and it is this move that is revealing the next theme that will dominate for the foreseeable future.
Currency intervention by every man (country) and his dog (central bank) seems to be on the cards, whether this takes the form of actual intervention in the market (Japan), not raising interest rates when you should (South Korea), slapping import tariffs on your competitor’s goods (possibly the US) or declaring that a rising currency means financial war (Brazil), we are currently entering unchartered waters in an environment in the FX markets last seen in the 1930’s. With Ben Bernanke due to address Congress this afternoon, today may see light trading this morning before a volatile afternoon, if you have any Dollars to buy today it may be worth giving us call before lunch!
The Yen continues to gain against the Dollar as the game of chicken between traders and the Bank of Japan continues. 82 was the previous intervention level and we now trade at 81.21, overnight we saw more posturing by Japanese officials about direct intervention but no concrete action as of yet. It is unlikely they will now intervene today, they usually choose the calmer Asian session for maximum impact, but it is worth monitoring closely for Yen buyers from both USD and GBP.
A large amount of Eurozone data has just been released and summarily ignored by the markets as there was little divergence from forecasts. The key Eurozone CPI figure remained at 1.8% year-on-year and seems to back up ECB comments earlier in the week that further asset purchases will not be necessary.
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