• NZD/USD -0.8%
• EUR/JPY +1.0%
• GBP/JPY +0.9%

NZD/USD

Confidence Drops To Five-Year Low: The lowest consumer confidence figure in five years sparked more selling and pushed the underlying spot price further below the day's support.  The move looks to further exacerbate over the longer term as fundamentals continue to erode, set aside from the better than expected deficit report showing a narrowing of the trade balance see earlier. According to the Westpac Banking Corp/McDermott Miller Ltd.'s consumer confidence index, consumer sentiment dipped to a reading of 109.3. Readings above the 100 mark signal confidence.  Incidentally, the report comes well after an earlier report that showed consumer consumption rising only by 0.3 percent in the fourth quarter.   As a result, speculation mounts of a rate cut possibility as it becomes increasingly clear to Reserve Bank of New Zealand Governor Alan Bollard that growth is slowing and will continue to slow in the near term.  In order to boost the already dour mood on domestic spending, policy makers will look to cut the 7.25 percent benchmark overnight cash rate. 

Rumorville: Bidding looks imminent following the precipitous fall during the session.  As a result, with bidders entering and profit taking imminent, buying interest looks to enter around the 0.6030 and 0.6000 handle where buy orders are rumored.  However, the upward rally may be shortlived as plenty of selling interest resides around the 0.6115/20 area on a pullback short.

EUR/JPY

IFO Points To Better Future: European optimism was reflected in an appreciated single currency during the session with the most recent IFO survey providing the spark. According to the institute's survey, business sentiment rose, soaring to a 15 year high with both current and future assessments higher. Based on an improving domestic picture and a pickup in foreign global demand, businesses are becoming widely optimistic as it seems that consumers may return in the near future.  However, the report also lends to FX speculation that interest rates will continue to rise.  Already accepting the return of higher prices, central bankers look to remain steadfast in their hawkish bias, raising rates to crimp inflationary pressures.  This may prove a problem as the economy remains in the nascent stages of a recovery and higher rates look to keep consumers hesitant.  Nonetheless, traders took the session to bid the euro higher against the yen as zero interest rate policy continues to be offered in the land of the rising sun.

Rumorville: After the day's move, profit taking looks to dominate the Asian session as plenty of offers reside above the 142 handle.  However, should momentum continue to hold, buyers are flocking around the 141.30 figure in lending some upside bias.

GBP/JPY

Bidders Head Into GDP Report: Further momentum from yesterday's mortgage report infiltrated the underlying spot price, bolstering the biggest move of the three on the day.  Climbing over 250 pips, bidders ramped up sterling bias ahead of tomorrow's gross domestic product report.  With a stabilized housing sector, rising consumer sentiment and better prospects of inflation, the overall output report would lend further confirmation of expansion.  The report would also quell any rumors or speculation surrounding the possibility of a near term cut in the repurchase rate.  Currently at 4.50 percent, the rate still offers a rate of return over the zero interest rate policy in Japan.  Further pound bidding may continue later in the week as focus shifts to the CBI Distributive report.

Rumorville: Further bidding looks to ensue should the currency momentum be retained in the major GBP component.  Bids remain heavy at the key 1.7450 figure with conflicting selling pressure just below the 1.7550 at 1.7540.

Richard Lee is a Currency Strategist at FXCM.