The currency markets seem to have consolidated, as other riskier assets such as equities and some commodities pushed higher. Copper, which generally reflects global growth sentiment soared to all time highs, while European and US equity markets continued their upward torrid pace.
The weaker than expected December German manufacturing orders did the euro no favors, but the data needs to be placed in the context of the incredible strength in recent months. The year-over-year gain of 19.7% is still impressive. The Feb 4, 2011 Summit ended with more disagreement than agreement. Even several countries often sympathetic to Germany dissented over efforts to drop the indexing of wages and encroachment sovereignty. Look forward, German Retail Sale and Industrial production will be the catalysts for the Euro in the short term.
The Yen remains the catalyst of the "risk off trade", and like US treasuries, benefit during appearance of a crisis. This has lent itself to decreasing the correlation between the USD/JPY currency and the short and long term interest rate differentials. The 2-year differential is trading near 50 basis points and is approaching its best level since mid-2010. Japanese exporters are capping the greenback for the moment.
US yields have broken out of their current 3-3.50% range, hitting at level of 3.67%. Yields are poised to continue to more to the upside, as riskier assets such as stocks, are pulling investors out of bond positions. 3.75%, will likely be the next stop, but the 4%, area, will be an interesting crossroads for asset investors.
Stronger than expected US economic data, should continue to push yields on the longer end of the US interest rate curve higher. Housing and Jobs data, will be the catalysts that potentially push the US long end (10 Year) above the 4% level.
Higher US yields should be positive for the USD/JPY, and a break above the 84.50, level, would signal further upside for the currency pair. A weekly close above this level should signal a reversal of the downtrend form 95.00 to 80.00 that the market witness during 2010.
The weaker than expected December German manufacturing orders did the euro no favors, but the data needs to be placed in the context of the incredible strength in recent months. The year-over-year gain of 19.7% is still impressive. The Feb 4, 2011 Summit ended with more disagreement than agreement. Even several countries often sympathetic to Germany dissented over efforts to drop the indexing of wages and encroachment sovereignty. Look forward, German Retail Sale and Industrial production will be the catalysts for the Euro in the short term.
The Yen remains the catalyst of the "risk off trade", and like US treasuries, benefit during appearance of a crisis. This has lent itself to decreasing the correlation between the USD/JPY currency and the short and long term interest rate differentials. The 2-year differential is trading near 50 basis points and is approaching its best level since mid-2010. Japanese exporters are capping the greenback for the moment.
US yields have broken out of their current 3-3.50% range, hitting at level of 3.67%. Yields are poised to continue to more to the upside, as riskier assets such as stocks, are pulling investors out of bond positions. 3.75%, will likely be the next stop, but the 4%, area, will be an interesting crossroads for asset investors.
Stronger than expected US economic data, should continue to push yields on the longer end of the US interest rate curve higher. Housing and Jobs data, will be the catalysts that potentially push the US long end (10 Year) above the 4% level.
Higher US yields should be positive for the USD/JPY, and a break above the 84.50, level, would signal further upside for the currency pair. A weekly close above this level should signal a reversal of the downtrend form 95.00 to 80.00 that the market witness during 2010.
