Morning forex report
The USD sank like a stone on Thursday and remained relatively soft o/n, with talk of a USD crisis continuing the make the rounds. While retail sales were weaker than expected at -0.6% (0.2% expected), ex-autos fcoming in at -0.2% (0.2% expected) the softer economy story has been running for some time and the market should have priced in 50bp to 75bp rate cut risk for next week already. This looks more like the uncertainty over the CDO mess continues drive a ‘USD buyers strike’ which is leaving the EUR and the rest to push a lot higher in spikey one way trading. The trend is your friend and the break of $1.56 leaves $1.60 open, with big swings to 1.70 and 1.80 still at risk after this. Favored? The EUR looked lofty above $1.30!!! Trichet and co. are probably wondering what to do as they can’t really lower rates given the amount of hawkish commentary coming from them over the last few weeks, and they probably see intervention as the last resort of a desparate central bank. They will have seized on the comments from S&P yesterday that suggested that the worst of the subprime writedowns was probably over, but then again, they thought that a ‘pig with lipstick’ was AAA so… For today the focus is on the CPI data, if this pushes higher then the Fed will really have a tough time of squaring the circle as they have ‘primed the pump’ in a big way, and if inflation starts to take off then… For the USD the EUR/USD would need to push below 1.5550 today to get USD bottom fishers thinking of 1.5330/00 pullbacks, while the Yen is still flirting with 100 for 97.50 and 95.70 on a retrace move. Keep 101.40 as the turn point on top just now for 103/103.70, the latter key for 105/107. Bottom fishing right now is well and truly tempting, and the BoJ must be thinking about this as the Nikkei continues to tumble, and to be honest, would the Fed and the ECB really give a hoot? Cable looks bid but 2.04 should be a sticky point, while EUR/GBP remains favored to top out ahead of 0.77, trend is up but GBP really should be finding frds up here. Still like picking on the CAD with AUD and NZD longs, while the CHF above 1.00 vs. the USD is very tempting on a bottom fishing play as well but unless 1.03 is regained, the trend risk has to be on a push towards 0.97 and even 0.95…
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