• CAD/JPY
• USD/JPY
• EUR/CAD

CAD/JPY

Go Cad Go: Economic data was tepidly received on the session with the ultimate Bank of Canada rate decision being the spark that sent the Canadian dollar major soaring.  Leading economic indicators remained optimistically suggestive printing 3 percent higher, in line with both estimates and previous figures with the most recent international securities transactions data adding downside pressure.  For the month, net inflows were outweighed by domestic investors and their appetite for higher returns from foreign investments.  For the third consecutive month, domestic investors sought out investment vehicles outside of the economy resulting in a C$2.7 billion decline for the month.  Especially disappointing, the figure was far below estimates of a C$3 billion figure.  However, leading to the upside, policy makers passed another rate hike of 25 basis points to push the short term benchmark to 3 percent.  What furthered bullish sentiment were subsequent statements by Governor David Dodge that further rate hike considerations look to follow as the economy is running at full capacity and higher energy prices will boost inflationary pressures higher to 3 percent at the end of 2005.

Carry Trade Opportunity: Furthering buying interest, traders look to capitalize on the increasing interest rate differential between the two economies.  Now with a 3 percent rate, and subsequent increases to come, the Canadian dollar has a 300 basis point advantage against a currency bearing a zero percent  interest policy.  Furthering the notion are expectations for rates to remain at zero in the Japanese economy until the second half of 2006.

USD/JPY

Traders Disregard Optimistic Data: In line with previous estimates, today's release of both leading and co-incident indicators shed further optimism over the world's second largest economy.  However, with both being a compendium of previously released data, for the most part, traders disregarded the figures and concentrated on the more anticipated U.S. data releases.  Nonetheless, fundamentals still remain strong in the Japanese economy as the overall country is expected to grow at a 2.1 percent pace for the year.

The Dollar's Day: Surprising to the upside, today's report on net foreign interest in U.S. securities vaulted higher against previous estimates of $60 billion in net inflows for the month.  Printing a $91.3 billion figure, investors remain confident that the widening U.S. trade balance is adequately being financed, maintaining an aire of security in the world's largest economy.  Additionally, consumer price increases rose the most in 15 years, prompting further interest rate hike speculation in the short term.  With the headline figure rising 1.9 percent, detailed attention was focused on the core figure as well. Excluding the volatile food and energy components, inflation still rose 0.3 percent on the month against a flat reading in the previous period. Coupled with statements by Fed President Yellen on a neutral rate of 3.5-5.5 percent, bullish interest remains high on dollar demand.

Technically Speaking: Breaking through formidable resistance of the 115 level, the currency pair looks to be retracing slightly on the morning's move.  As a result, the aforementioned level now becomes the first level of support on such a retrace.  However, with most experts now calling for a 118 hit on the break, a test or considerable consolidation over the 116 should not be ruled out.

EUR/CAD

Fundamental Drive: Euro traders bid the currency lower on the session in light of inflationary pressures that seem to be making their way throughout the producer price level.  Coming in line with the monthly estimate, at 0.5 percent, the figure sparked some nascent suggestions that ECB officials may have to consider rate hikes in the short term.  However, bolstering the overall bearish notion was a ZEW economic sentiment survey that was released to a negative bias.  Expected to print a 42 reading, the economic sentiment component dipped to a 39.2  release.  Ultimately,the dip looked to be attributed to political turmoil in the region along with continued pressure from rising energy costs and unemployment. 

Finalized Administration: With Chancellor Merkel finalizing her cabinet, many are wondering how effective the decision making process will run going into the new administration.  Notably, six conservatives were selected for seats in the new regime which may in fact make the incumbent's agenda harder to implement.  As a result, a continued stalemate on policy and further weakness in the euro zone economy is anticipated.

Technically Speaking: Breaking through all three Fibonacci support levels in the session, the cross looks to consolidate, if only momentarily, heading into the Asian session.  At this point, a retracement may be considered as the Canadian dollar major looks overextended and ready to test formidable support levels.  Nonetheless, at this point, further downside looks probable with a test at the October 13th low of 1.4019 a consideration.