London Session Recap

The JPY, GBP and the CHF have all seen sharp movements this morning, while EUR/USD has attacked key technical resistance (now support) in the 1.3735/40 area.

EUR/JPY has surged to an intraday high of 124.47 this morning, though vs the USD the JPY has failed to hold its softer overnight levels. The weaker yen in Asia followed an intensification of speculation regarding the likelihood of more BoJ policy action on March 17. Overnight PM Hatoyama commented that the current level of the JPY does not reflect Japanese fundamentals. Also the MoF's Kan indicated that fx intervention was a policy option; though his comments were not worded to suggest that this was an imminent threat. Speculation is centring on the likelihood that the BoJ will announce an extension to Dec's JPY10 trn fixed rate loan facility. The announcement of this facility in December coincided with the publication of a much better than expected US payrolls report. These two events were key factor in the Dec's USD/JPY rally. Talk that the Feb payrolls report could have boasted a positive jobs number if it wasn't for the poor weather and speculation that forthcoming US payrolls reports are due for a significant boost on the back of census employment present a potentially bullish environment for USD/JPY. That said, the failure of USD/JPY to hold its overnight gains reflect the counter influences that prevail. Not only do fiscal year-end repatriation flows have the potential to support the yen but the market is becoming increasingly watchful for further policy actions from the PBOC. This year the PBOC has set a precedent of announcing policy tightening measures after the close in domestic markets. This week's stronger than expected Chinese CPI data and this year's surge in credit has encouraged speculation that the PBOC may act again soon to tighten policy and this is supporting the yen.

A much stronger than expected Jan industrial production report from the Eurozone injected enthusiasm into the EUR and European stock markets this morning. The EUR is also benefitting from the notion that perhaps the worst of the Greek deficit crisis has passed. Comments from the European Commission's Juncker underpinned those from the ECB's Trichet earlier in the week suggesting that Greece has done enough to convince the capital markets of its will to turn around it budget. EUR/USD has surged beyond the technically important 1.3735/40 area to an intraday high of 1.3796.

The softer USD vs both the EUR and the pound follows reports that Yellen is President Obama's choice for the position of Federal Reserve Vice-Chairman. Yellen is currently a non-voting member of the member. She is also an arch dove recently suggesting that core inflation could move even lower this year and next. Yellen's position suggests she is unlikely to vote for a Fed rate hike at least until next year. The short squeeze in cable has taken it back to the USD1.5160 area. UK data overnight was limited to a bullish report on UK house prices movements from the lesser known group Acadametrics.

The surge in the CHF vs the EUR this morning is despite comments from the SNB yesterday that CHF strength would result in undesired monetary tightening, but is in tune with speculation that some CHF will be accepted as the Swiss economy recovers.

This afternoon's US retail sales release is likely to be the most crucial release of the week. US University of Michigan confidence is also due. The Canadian Feb jobs report may determine whether USD/CAD can break below the USD/CAD1.0220 level near-term.

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