Friday, November 10, 2006

Yen Firms on Jawboning

At 12:00 AM Japan September core Machinery Orders (exp 0.9%, prev 6.7%)

The dollar remains mired near its one-month low against the euro around 1.2860 and continues to trade on a weaker footing versus the majors. Renewed concerns over central bank diversification lead the greenback’s decline, with China reiterating its intentions of diversifying away from its massive dollar reserves. Several countries have already taken action to diversify their FX reserves, and the trend appears to be gaining momentum. Although a mass exodus away from the US dollar as the reserve currency of choice will unlikely materialize, the trend to shift their FX holdings will indeed maintain pressure on the greenback.

Moreover, expectations for global interest rate differentials will also continue to drive foreign exchange moves over the coming months. With lingering uncertainty over the duration the current FOMC pause in monetary policy, particular analysis will be made of forthcoming US economic data, specifically inflation reports. Commentary from Fed officials will also continue to be closely scrutinized. Fed Chairman Bernanke is expected to speak at the ECB conference at 8:45 AM New York time and traders will break down his comments for fresh clues as to the Fed’s policy direction and outlook on the economy.


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