Week in FX Europe – EURO at Yen’s Mercy

Next week is not expected to be as dramatic as this one. Investors were entertained by a commodity market that witnessed mass liquidation and by Friday found gold prices in the mid-point of its weekly range. The price action rebound probably had more to do with the “mass hysterical” downside overshoot hitting some significant long-term support levels followed immediately by a strong physical demand ever since. For the technical analysts out there, it is probably reason enough to suggest that a mid-term floor has been set. Friday’s last gasp from Europe saw the UK’s long-term debt being downgraded by Fitch to AA+ from AAA with Sterling bearing the brunt of the late day news.

The rest of Europe seems convinced that Japan is about to embark on a global shopping spree. Despite the IMF Chief suggesting that the ECB has room to ease monetary policy further could not keep the 17-member single currency down on the week. Reports that the G20 communiqué is essentially the same document released by the members last February has given Japan “the thumbs up” and USD/JPY the ‘green light’ to proceed to and beyond the psychological 100-barrier.

Similar to last time, the document will be seen as giving Japan a pass on “intentionally” weakening their currency. The new BoJ Governor Kuroda said that fellow members understand the case for his country’s unprecedented monetary stimulus. The Governor is adamant that they are not intentionally weakening their currency, the BOJ easing “is for a domestic policy goal to achieve the +2% inflation target at the earliest possible time.” The market should expect Germany’s Schaeuble and Weidmann to be scrutinizing the BoJ’s easing to make sure that it is not FX driven – they would prefer a tighter leash on Japan. However, if it’s domestic driven, then the Germans have no recourse. The EUR is now at Yen’s Mercy.

• Bank of Israel Supports BOJ Efforts
• IMF Lagarde Summoned to Court
• UK Retail Sales Fall 0.7 Percent
• German Parliament Approves Cyprus Bailout
• German Central Banker Spurs Rate Cut Possibility
• Portugal Approves 800 million Spending Cut Round
• Euro Borrowing costs fall after Spanish auction
• Brent Rises From Nine-Month Low on Speculation Losses Excessive
• IMF Plays Down UK’s Plan for Growth
• New EU Bank Rules to Start in 2014
• UK Inflation Remains at Highest Level in 12 months
• Central Banks Creating Irreversible Expectations – Ex-ECB Weber
• Cypriot Bank Depositors Could lose up to 8.3 billion
• ECB Draghi Pressures Governments for Crisis Dealing Changes
• Greece to Receive Next Round of Aid
• Troika Assures Market Greece will Return to Growth in 2014
• Weak European Demand May Lead to ‘Sluggish’ Economic Growth for U.K.
• EU to face G20 Scrutiny on EZ Financial Crisis Handling

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