23 January 2008 - 23:03Daily Commentary 1/23/08

I hope you took my comments about a strong Yen to heart because it strengthened to 105 this morning vs. the dollar. At the same time GBP/JPY fell 600 pips and retested the lows it set the day before and completing the pattern on the chart. The combination beginning of the yen rally (after the stock market closed) plus the GBP/USD failing 1.9650 at the same exact time made this possible. Not even better than expected GDP from Britain could prevent the pound’s decline and the bank of England minutes pointing out that Britain’s current account deficit had increased to 5.7% of GDP did little to help. The stock market rally helped the dollar recover 200 pips against the yen today. However once the stock market closed today the yen started to gain value again against both the pound and the dollar. The fact that the GBP/JPY rally up to the highs it set yesterday is very bearish. Tonight’s Japanese merchandise trade balance came out at 880 billion yen versus expectations of 943 billion yen. Still when you consider that this a still a surplus of $8.3 billion dollars for the month it gives a good fundamental reason to buy yen. Especially when you consider that the Japanese can’t intervene in the currency markets forever. The RBNZ kept rates unchanged as expected and the Aussie CPI came out slightly below expectations of .9% quarter on quarter to my surprise. This helped drive AUD/USD lower but in all fairness everything but the yen was backing off at the time the news was released. The Euro Monetary Union’s Industrial New orders came out better than expected this morning but did not stop the EUR/USD from falling and testing support today at 1.4535 and then 1.45 even. Interestingly, the Swiss franc was strengthening against the dollar while the euro was weakening against it. Shedding it’s relationship to the euro and instead correlating to the yen. USD/CHF currently rests at major support at 1.09. Should the franc continue to move along with the yen in tandem and figure give way then the Swiss franc should be well on it’s way to parity with the dollar. German IFO will be the big data in the European session and could sink the euro for the morning since there has been increasing pessimism lately in the Deutschland. Even bigger will be the existing home sales report at 10 am which is expected to come in down a full 1% and will probably be even worse than that.