Currency Trading Update 12/05/08

The leader board was shaken up yesterday with contestant 2 taking the lead and two new entries into the top five. Despite the GBP/JPY remaining the pair of choice for all the leaders, we are seeing different strategies being employed. The new Contestant 1 saw their portfolio appreciate to $396,723 without making any trades since December 2nd as they held several open short GBP/JPY positions choosing to ride the current trend of risk aversion. The previous leader also saw their portfolio rise to $393,626 from $356,391 but did it with several trades over the same period. Contestants 3 and 4 were able to jump into the rankings by actively managing their GBP/JPY trades as well. Despite the leaders affinity for the GBP/JPY the majority of contestants are trading the EUR/USD more than twice as much as the next popular pair the USD/JPY. However, traders shorting the Canadian dollar had the biggest gains, as Canadian manufacturing had its biggest one month contraction on record.

After two days of significant event risk that saw several European central banks cut rates and the U.S. Non-farm payroll report the biggest job loss since 1974, next week looks to start on a quiet note with U.K. producer prices as the headline fundamental release and no U.S. data scheduled.

Asian Trading Session
12/07, 18:50 ET
Japanese Trade Balance – The Japanese trade balance report for October is expected to show that the country’s trade surplus shrank to ¥74.8 billion from ¥247.1 billion as demand for Japanese exports slipped on the back of the credit crisis and a slowing global economy. Considering the U.S. and Europe are in a recession and China has seen a significant drop in growth we could see the trade balance post a deficit. Despite the negative connotations for the Japanese economy the data may not spark volatility as the Yen crosses generally trade on risk appetite.

12/08, 00:00 ET
Japanese Eco Watchers Survey- The survey of business cycle sensitive workers is expected to set a new all time low for a consecutive month. Economists are predicting a reading of 20.0 down from 22.6 the month prior. Japan’s restaurants, retailers and taxi drivers are feeling the pain of the current recession and the outlook has become bleaker every month. The indicator is one of the few fundamental releases that can impact Yen price action, but giving the current environment it may only lend support as it adds to the already declining global outlook.

European Trading Session
12/08, 04:30 ET
U.K. Producer Prices (Nov) – Inflationary pressures are expected to continue to ease in the U.K. on the back of free falling oil prices and a global slowdown. Input costs are expected to have fallen 2.6% in November dragging the annualized rate down to 6.9% from 13.8%-the lowest since September, 2007. Similarly, factory gate prices are expected to fall 0.5% and down to 5.6% annualized raising concerns for deflation. Indeed, the BoE cut their benchmark rate by 100 bps yesterday as they see inflation falling below their 2% target in early 2009. The release may weigh on the Pound as it will fuel the central bank’s fears, which may lead to further easing.

US Trading Session
12/08, 08:15 ET
Canadian Housing Starts (Nov) – New construction in Canada is expected to have fallen to 199,000 from 211,800 which would be the lowest in four months. Canadians have started to retrench as their confidence dims. Therefore, we could see a bigger drop in demand. The indicator is not considered significant event risk, but a worse than expected report will only weigh on the outlook for growth and may fuel the current bearish sentiment.

John Rivera
Currency Analyst

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