Will we see new positioning today?

Both EUR/USD and USD/CHF moved in a 30-pip corridor yesterday, while USD/JPY fell by around 100 pips in contrast. The Japanese yen was the single major mover in the currency markets yesterday, with yen strength seen across the board in USD/JPY and yen crosses, and was due to a sharp rise in Japanese capital spending. This caused the market to speculate again on whether this will increase the chances of the Bank of Japan raising interest rates again this year. The yen was also boosted by a continued rise in the Chinese yuan, which reached a new post-revaluation high against the dollar. MOF’s Fujii’s comments about the continued domestic demand led recovery in Japan also helped the yen.

USD/JPY fell below 116.60 as it broke below an up trendline. Next support for USD/JPY is around 115.90, and if this is penetrated, USD/JPY is expected to go down lower, as the large number of yen short speculators are forced to close their positions.

The Forex market is already turning its focus to the upcoming G7 and IMF meetings in Singapore next week. According to the draft of an IMF forecasting document, The International Monetary Fund will increase its economic growth predictions for the global economy and the Eurozone next week. If these meetings again issue the call for countries to take action against global imbalances or call on China to to allow its currency more flexibility, it could cause the dollar to fall - particularly against the yen and other Asian currencies. Europe, on the other hand, may be reluctant to exert more pressure on China, as that may cause the euro to appreciate even more, and as mentioned earlier, ECB is cautious about the euro gaining too much strength as that could dampen global demand for European goods.

EuroZone retail sales out at 0900 GMT, UK BRC retail sales monitor out at 1000 GMT, UK consumer confidence at 2301 GMT, and Reserve Bank of Australia rate decision at 2330 GMT.

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