Currency Notes
The U.S. Dollar continues to be predominately weaker against most of the major currencies, with the exception of the Japanese Yen. Equity, energy and metals markets are surging higher, helping to sustain the fundamental bearish spot market trend for the buck. Meanwhile, higher export commodity market prices for Crude Oil, Gold and Silver are boosting currency values relative to the greenback for countries such as Canada, Australia and New Zealand. However, these commodity markets are beginning to reach overvalued technical levels, which may lead to a downward short-term correction and negatively impact currency prices.
Investment funds are seen moving back into carry trades, fueling fresh selling of the Yen against the majors. Borrowing Yen to fund higher-yielding investments may remain an attractive strategy for the time being, after the Bank of Japan decided to leave interest rates unchanged at 0.5% yesterday. The risk for the Yen in this situation is the rapid unwinding of these carry trades in massive quantities, which can cause abnormal price movement to the upside that the Central Banks do not favor in the least. This has led to concern among politicians and voting bank members in Japan over the decision not to move rates higher – a debate that is likely to continue in the public forum until the Central Bank meets again on October 31st.
Euro traders have seen prices rebound up to 1.4240 after a mid-week drift lower from 1.4000. The 10-day moving average is seen crossing back into bullish territory with a sustained a break above 1.4140, and looks to consolidate at current levels. Fundamental and technical pressure is mounting for another test of all-time highs, with resistance at 1.4300 a potential target.
Today’s U.S. Dollar data includes a September month-over-month retail sales figure expected to come in slightly higher at .3%, as well as September Producer Prices, excluding the auto industry. The PPI measures average changes in selling prices received by domestic producers of goods and services over time from the perspective of the seller. Finally, the University of Michigan 5-year Survey – a trader favorite – may provide some indication as to whether consumers feel like spending their money. Given the rising cost of consumer goods – including food – this promises to be an interesting release.
At the end of the Asian session, the EUR/USD trades 1.4180, Dollar/Yen 117.45, Pound Sterling 2.0265, and Dollar Canada .9785.
Currency Analyst Heather Mitchell
