Forex forecast Earthquake and hit Japan Grabs the Markets : Just as the war cries of EU sovereign crisis were hitting a crescendo, news of a devastating earthquake in Japan has redirect the market's attention and provided the EU market with some limited breathing room. Rating downgrades this week, rising CDS prices in Greek and Portugal and growing concerns that the proposed comprehensive rescue plan might fall short of delivering an long-term solution will all take its toll on the Euro and risk appetite. The Japanese earthquake was 382km east of Tokyo, registered a magnitude of 8.9 and was a roughly 10km deep.Initial reports of the damage has been extensive and calls for civic calm have been broadly issued. In addition Japan is still feeling aftershocks and countries throughout the Pacific are on high tsunami alert. As expected, the JPY came under pressure with USDJPY initially climbing to 83.30 then correcting lower. For those looking to draw a comparison between the New Zealand earthquake and NZD - we doubt the effect of this earthquake will affect the JPY to the extent that the other one did the NZD.
The damage in Japan seems to be less extensive as a % of the overall economy than in New Zealand and the market was quick to price in rate cuts which will not occur with the BoJ already at zero. The wide spread coverage of the catastrophe has diverted the market's eyes from events in Libya, the European council meeting (expected to discuss Libya) and potentially the critical US economic data in retails sales this afternoon. Given these developments we suspect that heading into a weekend where risk appetite will be on a back footing and traders will be paring down long volatile FX trades.
Reflecting this is Asian regional indices which are red across the board with the Nikkei down 1.72% and the Europe is looking to open to the downside. Both Gold and crude have soften slightly with WTI now sitting on the $100 psychological support and US treasuries continue to move lower across the curve. In China, CPI came in at consensus of 4.9% y/y, industrial production beat forecasts at 14.9% vs. 13% expected and retail sales disappointed. The general feeling is that these numbers show that the recent rate hikes have been effective in temporarily cooling inflationary pressure without killing growth.
At today's European Council meeting, we don't expect any tangible results. However with peripheral bond vs. Germany yields continuing to widen, there will be growing speculation that definite action might emerge. Every day that the situation worsens increases the pressure on the Economic Finance ministers' meetings March 14-15th and then the final stopgap being the EU summit on March 24-25th. With questions mounting regarding the Spanish banking sector, including the report from the bank of Spain that 12 Spanish lenders need to raise €15.2b, a comprehensive solution is looking harder and more likely the market's will find fault.
The EU's official biggest mistake was not provided a compressive plan immediately when worries over Greece erupted last year. The situation is still manageable which will quickly shift the focus back on the US and Fed's attempts to deliberately weaken the USD. Today's US retails sales will briefly capture the market's attention. The 1.0% expected rise should provide the USD bulls with short term recovery hopes (easily forgiving Initial jobless claims upside surprise to 397k) and watch for the USD to head into the weekend some decent momentum. For the latest updates PRESS CTR + D or visit Stock Market news Today
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