USD/JPY
Carry Trade Onward: Powering the major currency pair higher were further speculative positioning on carry trade potential between the two economies. Currently boasting a 400 basis point differential, traders sided with the greenback as economic data released early on suggested continued tightening heading into the last month of the year. Personal spending inched higher at a 0.2 percent tick as construction spending also rose on the month. Manufacturing activity was also bolstered as first time unemployment claims declined slightly in comparison to previous figures. However, a little negative news did work its way into the slew of optimism. Inflation, according to the Commerce Department, rose only incrementally by 0.1 percent. The personal consumption expenditure, a preferred gauge of inflation, was expected to rise 0.2 percent. As a result, market participants, although bent on a continuance of higher interest rates even going into 2006, are beginning to consider the notion of a slowdown in the speed at which such rates will occur. At least for now, with the focus so strongly pointed to higher rates of return, the temporary optimism looks to lead at least to further upside in the near term.
Technically Speaking: Bouncing off of the 118.23 support level earlier in the week, carry traders have boosted the underlying past significant levels with ease. In the near term, bulls have propelled the currency pair through consolidation in the overnight to break above 120. As a result, with momentum consolidative at the moment, a retracements to 120.11 (23.6 percent fib from the intraday move) looks probable before further upside is witnessed. With still stronger bid sentiment, the currency pair looks upward to 121.00.
GBP/JPY
Traders Ignore Dour Data: Traders casted aside the dour data that was released in the U.K. this morning to favor the most recent theme, higher rates of return. Although sentiment exists of a potential rate cut by the Bank of England, rates still remain high compared to a zero interest rate policy in the world's second largest economy. The current rate differential is similar to that of the major currency leg, 425 basis points. As a result, the cross synthetic soared on the session to test 209, a level not seen for seven years. Separately, manufacturing dipped in the month according to the Chartered Institute of Purchasing and Supply. The report, declining to a reading of 51, still remains suggestively expansive but shows dips in key components such as new orders and employment. Additionally, retail sales volume fell to the worst in the history of the survey relesed by the Confederation of British Industry. Falling to a reading of negative 35, the report has led many retailers in not betting on a miracle come the holiday season. Still troubled by lower sentiment, consumers continue to be reserved when it comes to everyday consumption in light of stabilized housing. As a result, the pessimistic report led market participants to anticipate a rate cut in spurring consumption. However, as mentioned earlier by Governor Mervyn King, the likely rate cut may not be forthcoming as policy makers will target inflationary concerns and not retail sales or domestic demand in their decision.
Technically Speaking: Breaking through the triangle formation, the price action has rocketed higher off of 205.26 (38.2 percent fib from the intermonthly move). Now testing 209, the currency cross is ripe for a brief turn around before further upward ground can be gained. As a result, the first test looks to be the floor at 206.73 (23.6 percent fib) with a less likely scenario at 205.26.
AUD/JPY
Commodities Higher: Carry traders bid up the last of the crosses on the day. Comparatively, the AUDJPY pair boasts 550 basis points between the two economies with a potential for more as the Australian economy looks to deal with further inflationary pressures in the near term. In addition, bolstering the incredible daily move, traders took the opportunity to bid in line with higher commodity prices. Notably on the day, gold bullion traded higher above the 18 year high, hitting slightly above the $500 an ounce mark before slightly retracing. In addition, platinum contracts continued their lofty prices after touching the record $1,000 figure. However, most of today's correlative action was resultant of copper contracts topping all time records at $2.10 a pound earlier on in the U.S. session. A commodity base metal, the contract which now stands at above 45 percent for the year is fueling further concerns over global inflationary pressures. It also bodes well for the Australian denomination as the economy is known for producing such base metals. Ultimately, any further upside seen in commodities may in fact lend to higher moves by the pair.
Technically Speaking: Bouncing off of the 85.83 support floor, the currency has not looked back while steaming ahead to test the 89.50 resistance. In like fashion to previously mentioned crosses, price action looks ripe for a temporary retracements before making further advancement. The probable test looks to be 88.71 (23.6 percent fib from the intermonthly move), with a secondary floor at 88.17. On the flipside, a break above the 89.50 resistance would lead to an onslaught of the 90.00 figure.
Richard Lee is a Currency Strategist at FXCM.
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