Investors took profits on currency pairs that have recently run up creating a corrective them for the trading session. The short-term momentum traders have been frustrated with the euro’s inability to convincingly break above the $1.40 level and sterling’s four attempts at $1.6350 appears to be the main impetus behind today’s pullback.
With today’s losses, the euro has slipped through the post-Trichet comments made last week. The next band of support is seen in the $1.3850-80 area. Sterling has slipped to six day lows today. A break of $1.6150 now could see loss toward trend line support near $1.6070
The US-German 2-year yield captures, the drive force behind currency movements. At the end of last year the US 2-year yield was about 20 basis points less than Germany. Now it is at 105 basis points.
Net speculative long euro positions rose in the week through last Tuesday to 51.3k contracts, the upper end of positioning since the crisis began, it likely understates positioning given the euro’s surge following Trichet’s rate hike signal.
German manufacturing orders in January rose 2.9%, a bit better than expected, thought the December decline was revised to -3.6% from -3.,4%. Domestic orders rose 4.5%, while foreign orders rose 1.6%.
There is little European fundamental data to move the markets tomorrow, which will likely mean that short term momentum will continue to drive the EUR/USD toward support levels.
The USD/JPY moved lower, as a yield differentials continue to make the dollar a more attractive assets. The retraction from safe haven assets which include oil and the Yen, allowed fundamentals to gain some control.
Foreign investors also bought almost JPY1 trillion of Japanese equities in February compared to  JPY600 billion in January. That means that in the January-February period foreign investors bought more Japanese equities than they did in the prior 5-months combined.
Japan’s January current account data reported earlier today was depressed by the calendar effect of Lunar New Year. The report confirmed what the merchandise trade report in late February already indicated that Japan experienced a trade deficit in January.
Today, the BoJ Governor Masaaki Shirakawa gives a press conference as to how the BoJ observes the current Japanese economy and the value of JPY. His comments may determine a short-term positive or negative trend of the currency.
Tomorrow the markets will concentrate on Japan GDP (2330 GMT). A stronger than expected number will help the Yen regain some ground against the dollar and the Euro. Expectations are for a decline of .3% on a month over month basis.
