EUR/USD has been under pressure in European hours; the USD finding support despite the modest upward push in European equity indices.  Risk appetite has been unsettled by yesterday’s news from Brazil that if would further tighten restrictions to stop short-term speculative inflows and by talk that other emerging countries would follow suit.    The Turkish central bank this morning has dismissed talk that it is considering such a move.  The better position of the USD in Europe has knocked gold, oil AUD/USD and NZD/USD off their overnight highs.    USD/JPY found support in very early London hours on comments from the BoJ’s Shirakawa.  Sterling remains under pressure on fears that fiscal consolidation will hinder the potential for growth.

Comments this morning from the Director General of the CBI kept the focus on the awful position of the UK government finances.  Lambert aligned the CBI with the plans of the Tory party to reduce the budget deficit swiftly and sharply and rejected the more gradual approach to deficit reduction favoured by the incumbent government.  Yesterday’s terrible UK Oct PSNCR data had served as a reminder of the need to put the fiscal situation in order starting from next year. Insofar as tax hikes and spending cuts will contain growth potential going forward and underpin the case for lower BoE rates for longer sterling has been under pressure.  Further negative news came from the Nationwide building society’s prediction that UK house prices may fall again next year.  Cable has trended lower from the start of the European session, presently edging down to 1.6545.  EUR/GBP has seen a high this morning of 0.8990. 

The BoJ raised its assessment of the economy at its overnight policy meeting while maintaining its outlook for low interest rates.  In the press conference Governor Shirakawa commented that it is monitoring currency markets which took USD/JPY higher from the 88.70 level and played down talk of a widening rift between the BoJ and the Japanese government which warned last night that the Japanese economy is in deflation.  EUR/JPY continued to edge lower towards the 132.10 level consistent with the reining in of risk appetite. 

The EU has appointed Belgian Van Rompuy as President.  Belgium is a country characterised by two different languages and cultures.  Belgium was very pro EMU ahead of its initiation in 1999 and has seen solid levels of support for a move towards a federal Europe which would arguably help dissolve the impact of its own national differences.  Van Rompuy is seen as a successful conciliator and mediator.  Overtime the appointment may help increase the perceived coherence of EMU but it should not have any near-term impact on the EUR. 

There is no key US or Canadian data due for release today. 

The Dollar and Yen were steady to end the week as declines on Wall Street carried over to Asia, stemming any demand for risk as traders trimmed positions ahead of the Thanksgiving holiday week. Although most risk pairs ended the day close to flat, the trade day was cut into three distinct parts. The first part of the day was a quick run up in the risk currencies prior to the Tokyo fix, pushing the dollar and yen to session lows. Once the fix was concluded the second move involved a selloff of risk, pushing the dollar and yen to subsequent daily highs. The final chapter to the day was a late run up in gold which pulled the dollar and yen back near opening levels.

Using the EUR/USD in the above formula, we had an open near 1.4915, a move to 1.4935 highs into the fix, an ensuing drop to session lows near 1.4885, and a push to 1.4920 on the back of the gold move late in the day. Plugging in the GBP/USD to this equation, we have a 1.6675 to 1.6615 range, AUD/USD, 0.9215 to 0.9150, and NZD/USD moved between 0.7330 and 0.7250 for the session. A good deal of the moves could be attributed to traders squaring positions ahead of the long weekend in Japan.

The moves in the yen crosses were identical as the top and bottom of their ranges were forged before and after the Tokyo fix. USD/JPY was dead in the water once again today, failing to break out of a 20 pip range between 88.85 and 89.05. Overall the flow seemed light and choppy today, and as usual, the yen failed to budge when the Bank of Japan left the call rate unchanged at 0.10% as expected.  

Spot gold made a strong late day climb from session lows of $1139.00 to $1145.00 highs by the London morning, pulling the risk currencies back near unchanged as mentioned. Waves of profit taking in New York had dropped the precious metal as low as $1130.00 in what some traders called an “overbought” commodity.

With light data later in London and no data out of the US tomorrow, expect trading to be light as investors prepare for the three day weekend in Japan as well as the Thanksgiving Holiday shortened week upcoming in the US. Have a nice weekend.

The NY session witnessed a total washout for risky assets. This was a welcome sign for the bears that see the current rally as long in the tooth. US equities shed more than -1.3% in broad terms but the recent correlation between stocks and currencies broke down a touch. Despite what was a beaten down equity market for the better part of the session, EUR/USD managed to rally from a NY open near 1.4860 towards the 1.4920/30 area as we write. USD/JPY meanwhile traded in tandem with Treasury yields, following the 10-year rate down to the 88.65/60 lows before recovering only to find resistance ahead of 89.00 currently. Gold suffered hefty losses early in the session as the precious metal squeezed down towards the $1130 area. Traders eventually shrugged off the US dollar strength and carried gold back towards flat on the day by $1145/46.

Even better economic data couldn’t help stocks today. The Philly Fed manufacturing index blew away expectations, coming in at 16.7 in November versus expectations for a 12.2 print. The details of the report were stronger than the headline as well. New orders jumped to 14.8 from 6.2 while shipments popped to 15.7 from 3.3 the prior month. The employment component also showed significant improvement to -0.5 from -6.8 last month and -14.3 the month before that. Speaking of employment, the average workweek index rose to 2.0 from -4.7 and the first positive print since 2007. This improvement in what is a leading indicator of economic activity should have helped risky assets find a short-term bottom – so much for that!

Looking ahead to the Asia session, we have New Zealand credit card spending and the Bank of Japan rate decision due up. Both events should elicit little in the way of price action but if global equity marts follow US shares into the depths, look for the US dollar to come back better bid on the follow.