Archived IMT (2011.04.07)

No "vigilance" from Trichet and a strong aftershock in Japan ended a six-day winning streak in EUR/USD and triggered a yen rebound. The commodity rally and whippy price action in AUD/USD will be the focus in Asia.

EUR/USD initially fell after Trichet said THURSDAY's s RATE HIKE was not necessarily the "first of series " and held off using the code word for "strong vigialance", which indicates a further imminent rate hike. The euro’s decline following the press conference was short-lived, however, and EUR/USD ended the day only fractionally lower. The price action points to a continued appetite to accumulate euros. The market is priced for two quarter-point hikes by year end and a high probability of a third hike.

A 7.1 MAGNITUDE EARTHQUAKE struck Northeastern Japan at around midnight local time. A knee-jerk round of risk aversion sparked a yen rally but there have been no reports of large-scale damage or problems at nuclear installations. A clearer picture will emerge as the sun rises.

Last-minute meetings to avoid a U.S. GOVT SHUTDOWN on Friday appear futile but with in Washington there is always a chance of a deal. The market still doesn’t care as most anticipate that any shutdown will be short-lived. Jobless claims were at 382k compared to 385k expected.

ASIA PACIFIC PREVIEW

Japan’s current account surplus (Exp: ¥1.33 trillion) and the BOJ’s monthly report are the only notable events in the Asia-Pacific session.

The aftershock caused a 40-pip blip in USD/JPY as it fell to 84.60 and then rebounded back to 85. Keep a close eye on USD/JPY. Thursday's decline was the first in two weeks and gives us a chance to gauge the market's appetite to sell yen. The end of the week would typically offer an opportunity for further profit taking (USD/JPY declines) but fresh gains would point to an extended rally. AUD/USD price action since the employment report has been treacherous. The pair initially rallied 50 pips to 1.0480 but quickly gave up half the gains. Early in North American trading the pair pushed to a record 1.0507 but quickly retreated back to 1.0411 then edged up to 1.0470. Medium and long term signals are pointing to further gains but whippy trading around a news event like the jobs report often signals a short-term top.

THE COMMODITY RALLY continues with gold and oil hitting fresh highs on Thursday. The Middle East remains a key driver of resources but other sources of recent strength include: 1) the spiraling costs of rebuilding in Japan 2) Continued easy money from the Fed 3) renewed signs of growth in emerging markets, especially China. The street is growing more bullish on China on hopes it can bring inflation under control and speculation that it is nearing the end of its rate hike cycle. These calls may be premature but a soft landing in China is the most compelling reason to buy commodities, CAD and AUD.

By AB - AshrafLaidi.com Staff