The dollar has maintained last week’s gains by and large today although it faltered against the carry trade currencies of Swiss Franc and Japanese Yen. The cash transfusion into the U.S. of one hundred billion dollars helps support the dollar from a fundamental perspective. Meanwhile the declining stock market helps make the case for a stronger yen which bounced off of the 50% Fibonacci retracement of the move from 101.74 during the Asian Currency Crisis to the high printed this summer at 124.13. There is a lot of resistance at around 114 so expect it to hold. Meanwhile the Euro is still declining against the US Dollar and the Pound looks finished here as well. If this keeps up the EUR/JPY should decline by default, but not if carry traders have anything to say about it. It will be worth watching Japanese retail sales figures tonight at 12:30 am to see if domestic demand is finally picking up there. Then there are UK CPI and retail sales to consider being released at 4:30 am. I don’t expect that the British CPI will be too high because of the effect I mentioned when I rightly anticipated a below expectation inflation for the Euro area. The inflation in commodity prices created by a weak dollar is partially offset by a strong Pound. One thing is for sure, house price inflation has now become house price deflation in the U.K. Later on at 7 am we have Canadian CPI which once again I expect to be tempered by the exchange rate situation. So it could turn out to another dollar positive day, all things considered.
