Daily Report: Dollar Remains Weak, Yen Surges on Carry Trade Unwinding

The trend continues as the week is close to an end. While dollar remains generally weak across the board, the strength in yen is rather impressive, with yen crosses topping the occupying the highest spots in the top movers chart. Markets are seen scaling back high risk investments after Fed Bernanke mentioned yesterday that "there probably will be some bank failures." Weakness in the US and Asian stock markets prompted carry trade unwinding, which is evident in the rally in yen as well as the strength in Swiss Franc comparing to other European majors. Technically speaking, today's break of 104.96 in USD/JPY indicates that the whole down trend from 124.13 has already resumed, now targeting 101.22/65 long term support level.

Economic data released so far today saw Japan national CPI unchanged at 0.8% yoy in Jan. Unemployment rate was also unchanged at 3.8%. Housing starts dropped -5.7% yoy in Jan, better than expectation of -12.3%.Construction orders fell -2.5%. Sterling remains the weakest one among European majors, as seen in EUR/GBP and GBPCHF crosses, on the view that UK is most affected by US's subprime mortgages problems. Nationwide house prices fell -0.5% mom in Feb, worse than expectation of 0.0%. Yoy rate was down from 4.2% to 2.7% vs consensus of 3.6%.

On the other hand, Euro remain supported by solid data from Germany. Feb was unchanged at 2.8% yoy though HICP was down from 3.1% yoy to 2.9% yoy. Retail sales report in Germany was solid, showing 1.6% mom growth pushing yoy rate back to positive territory at 0.8%.

Focus will turn to Eurozone HICP, which is expected to be up from 3.1% to 3.2%. Unemployment rate is expected to drop further from 7.2% to 7.1% in Jan. Sentiments indicators are expected to show only mild deterioration. Other data to be released in European session include UK Gfk consumer sentiment and Swiss KOF leading indicator.

From US, markets will look into the personal income and spending report today which are both expected to show 0.2% growth in Jan only. Headline PCE and core PCE are both expected to slow slightly to 2.1% and 3.4% yoy respectively. Chicago PMI is expected to dive below 50 to 49.7.

Posted in: Forex