| The market was unimpressed by the G7 communique and the lack of any specific coordination to address the global crisis saw a focus on risk aversion that saw currencies gap lower at the Asian open with the USD and JPY stronger. The mood towards risk aversion was further supported by the worse-than-expected -3.3% decline in Japan's Oct-Dec GDP data. USD-JPY dropped to lows of 91.43 before bouncing back to 91.75 though overall, remained within the recent 87.50-92.50 trading range, albeit with a current upward bias. EUR-USD gapped from levels around 1.2900 to almost 1.2800 consolidating around 1.2758-08 through most of the session until a slump to 1.2739 emerged ahead of the London open. Except China, Asian stock markets remained heavy on the signs of slowing global growth after weak European GDP data on Friday and the weak Japanese data today. Crude remained little changed juxtaposed between weak global demand and renewed OPEC threats to cut supply. Trading was subdued overall with both the U.S. and Canadian markets closed for holiday today. | NZD/USD replicated its trans-Tasman counterpart, almost reaching 0.53 in Europe, and falling back to 0.5230. Friday’s retail sales report confirmed our suspicions that the uncertain outlook is motivating consumers to save. The housing report showed volumes stabilising, but prices continuing to fall. AUD/USD continued its stimulus-led domestic bounce until early Europe to 0.6645, when it followed EUR’s lead lower, and ended the US session slightly above its 0.6550 low. AUD/NZD did little, well contained by 1.2500 to 1.2580. EUR had several gyrations within a 1.2820 to 1.2945 range, as Q4 GDP printed weaker. GBP suffered the Lloyd’s result, plunging from 1.46 1.4350. Speculators were likely long GBP, pre-G7, exaggerating the fall. USD/JPY was one-way from 91 to 92, again on expectations of a specific G7 comment. US UoM consumer sentiment falls from 61.2 to 56.2 in early Feb. Consumer sentiment weakened significantly this month. Current conditions edged up a little, but the higher weighted expectations component fell back sharply. Inflation expectations fell in the shorter term, but increased slightly on a five year view - quite prescient on the part of US consumers, given that inflation is about to turn negative because of falling energy costs but may return as a problem in several years time due to the policy measures now being put into place to support the banking sector and prevent a deeper recession. Canadian auto sales dropped 14.8% in December, their third monthly decline. The latest fall was the steepest since January 1998 when sales were hit hard by an ice storm; there were no such weather factors at play this time around. StatCan guidance for January was that sales recovered by “about 6%”. Euro land GDP contracts 1.5% in Q4, confirming that the Euro land economic recession deepened alarmingly late last year, with all major member countries recording a sharp contraction in output. Little detail is available with this advance report, but partial data make it clear that the slump in global trade has had a significant impact on industrial production and exports across much of the continent. For Euroland as a whole, the 1.2% yr annual pace of output decline is the weakest since aggregate data began in the mid 1990s. |
| G7 Statements, Dismal Japanese GDP Results The Japanese yen outlook remains contingent upon risk trends, and keeping this in mind, traders should watch out for the forex market’s reaction to both the G7 statement, Japanese GDP results, and word on final votes on the US fiscal stimulus place. The G7 statement has potential to include hawkish comments on currencies like the Japanese yen, which could help drive it lower on speculation that the government will physically intervene, but it is worth noting that previous G7 meetings have yielded little in the way of market-moving news. Meanwhile, on Sunday at 18:50 ET, Japan's Cabinet Office will release preliminary growth readings, and after two consecutive quarters of contraction in Q2 and Q3, the outlook doesn't look good. There are signs that businesses are suffering considerably at the hands of waning domestic and foreign demand. Consumers have very little to work with these days, as the jobless rate has been climbing slowly, and perhaps even worse, pre-tax earnings growth has actually fallen negative compared to a year earlier, according to the latest figures. Meanwhile, Japanese exporters have had to grapple with not only slowing global growth, but also the appreciation of the Japanese yen, all of which has led foreign-bound shipments to tumble a whopping 23.1 percent in Q4 2008, according to preliminary figures published by the Ministry of Finance. As a result, a Bloomberg News poll of economists shows expectations for GDP to fall 3.1 percent in Q4, with the annualized rate forecasted to plummet by the most since 1974 at a rate of 11.7 percent. This could hurt risk appetite during the Asian trading session, lead the Nikkei lower, and thus push the Japanese yen higher amidst deleveraging. |
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