FX Trading Subdued

Market Brief

FX markets were relatively stable in Asian session as yesterday's volatility seem to have driven more then just the US participant to start their weekend early. EurUsd climbed tentatively back above the psychological 1.5700 level while UsdJpy bounced around 106.60 / 106.80 levels. Carry trades picked up a slight intraday upwards trend with EurJpy moving from 167.25 to 167.84 and AudJpy found support on the 10d-ma, rallying to 102.75. With a light calendar and the US 4th of July holiday we would expect trading to be subdued.

Oil prices were stable with Dubai trading at 145.13bll while gold slipped slightly to 934.35oz. US stock markets for the most part were able to shrug off the negative payroll data and close slightly higher however Asian markets were lower with only the Shanghai Composite trading up 1.95% higher today. European index futures are trading higher before the open US markets are closed.

As we had expected the ECB raised rates by 25bp to 4.25% yesterday while the accompanying press conference was more dovish then we had anticipated. In fact during the Q&A portion, Trichet said, 'I have no bias' in regards to future rate decisions. A comment he has never uttered before and clearly illustrates that the ECB now has a neutral bias. At this point we have a slight bias towards an additional hike in September due primary to Euro zone inflation which is expect to print at 4.1% for August. A large worrying figure and one that will provide Trichet with many sleepless nights, especially considering growth has now increased the pace of downwards deterioration. We don't expect EurUsd to pick up any noticeable trend until data from both countries starts giving us real signals as to the direction of monetary policy.

We will however be watching the UK and Gbp for selling opportunities. While the recent trading pattern of Gbp strength has been based on the markets renewed focus on inflation over growth we expect given the rapid decline of the domestic economy an eventual shift will occur. We expect a choppy move back to the 1.9300 lvls mid term.

Yesterday Sweden's Riksbank hiked rates 25bp to 4.50%, following the lead of the Norges Bank in a move that was widely expected. CPI inflation has recently jumped to 4.0% and rate expectations have followed suit putting the offensive. In addition, the bank signaled that the market could see two more rate hikes in order to slow the economy and contain inflation pressures.

In Australia trade deficit printed at $965m in May in line with expectations. However, there were large revisions of around $1.0bn to April, as higher contract prices for commodities were passed through.

10:00gmt - ECB's Trichet speaks
10:00gmt - ECB's Gonzales-Paramo speaks

ACM FOREX

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