Forex Flash: Yen weakness, European calm and US dysfunction dictating market – BBH
FXstreet.com (Barcelona) - The main feature in the foreign exchange market continues to be Yen weakness note Brown Brothers Harriman analysts.
They feel that this weakness, based on expectations that the new Japanese government will succeed in driving the dollar to JPY 90 with a combination of more aggressive monetary and fiscal policy, is offering support to other currencies, with Yen sales a combination of momentum and carry strategies.
Further, the team believe that the market is anticipating a further reduction in tail risks in Europe. They write, "Of course the large moves away from the abyss this year are clearly the doing of the ECB with its long-term repo's and offer of (conditional) outright purchases. However the European Commission will do its part by granting several countries, including France and Spain, an extra year (and maybe two for Spain) to reach the 3.0% deficit target. An official announcement has not been made, but the signals from the EC and the Commissioner for Economic and Monetary Affairs Rehn are unmistakable."
Finally, the final driver of market sentiment is the looming US fiscal cliff and debt ceiling. The team note that yesterday the Treasury Department indicated that it will begin taking special measures to avoid violating the debt ceiling. After last week's failure in the House of Representatives, attention turns to the Senate. With the Democrats enjoying a slim majority, they believe it is possible that they vote on a bill along the lines that Obama outlined.
They feel that this weakness, based on expectations that the new Japanese government will succeed in driving the dollar to JPY 90 with a combination of more aggressive monetary and fiscal policy, is offering support to other currencies, with Yen sales a combination of momentum and carry strategies.
Further, the team believe that the market is anticipating a further reduction in tail risks in Europe. They write, "Of course the large moves away from the abyss this year are clearly the doing of the ECB with its long-term repo's and offer of (conditional) outright purchases. However the European Commission will do its part by granting several countries, including France and Spain, an extra year (and maybe two for Spain) to reach the 3.0% deficit target. An official announcement has not been made, but the signals from the EC and the Commissioner for Economic and Monetary Affairs Rehn are unmistakable."
Finally, the final driver of market sentiment is the looming US fiscal cliff and debt ceiling. The team note that yesterday the Treasury Department indicated that it will begin taking special measures to avoid violating the debt ceiling. After last week's failure in the House of Representatives, attention turns to the Senate. With the Democrats enjoying a slim majority, they believe it is possible that they vote on a bill along the lines that Obama outlined.
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