The yen loses out vs the European currencies

Economic stats remain underwhelming

It has been a quiet two weeks since I last updated this blog. The Yen’s strength petered out as it moved beyond the 95.95 level against the Dollar and as warned has fallen back into no-man’s land as the market continues to be reluctant to break the outer limits of the 95.61-101.43 range.

More impact has been seen in the Dollar’s value against the European currencies where the market had been predominantly bullish for the Dollar based on the fact that the expectations were for the States’ economy to recover earlier than Europe and that there was probably more hidden problems still to surface in the still fledgling United States of Europe.

Now, as we see some modest statistical support for Obama’s claim of early signs of recovery the Dollar begins to lose out.

Economic analysis certainly behaves in strange ways…

I’ll stick to my methods of forecasting thank you very much… This had already indicated some 2 months ago that Dollar weakness would be developing by the sort of time frame…

What has been interesting from this event is that the Yen has failed to benefit as much as the European currencies and this has seen the Yen steadily weaken against the European currencies.

It does also begin to weaken my view of a much lower Dollar versus the Yen…

The market is slowly beginning to feel more at ease with the States. Obama has dipped his hand strongly into the consumers’ purses by pledging their future debt to his recovery plan and this is seen as a positive. Once again spending power is there to pull the States from the biggest threat since the 1930’s.

Last month saw fewer people made redundant and the regional Fed bureaus reported slightly better manufacturing numbers. Equity markets have rallied, dragging oil prices up to $58 pb in their wake as oil traders begin to over-react to the prospect of a higher demand for fuel.

Interestingly the fact that U.S. banks require another $74.9bn of funding to bring their capital ratios back into order has been all but ignored. I find that quite shocking…

Forgive my pessimism but I hardly see it as a positive. The signs of recovery are still exceptionally fragile. Debt levels are still high, too may householders have negative equity and the fear of losing jobs is still strong.

These are not good signs that consumers are going to go out and spend… and therefore the chances of a sustainable recovery are still pretty low by my reckoning. In that case the risk of bad debts rising in banks is still a palpable risk…

Back to Forex… The value of the Yen versus the Dollar will probably remain relatively stable within a range but this week and next should still see the Dollar and probably the Yen losing out further against the European currencies.

I can’t see any runaway moves at this stage since it seems as if investors are just not confident enough to place any bets either way. That in itself suggests there is still no real confidence in claims of recovery…

Ian Copsey
www.fx-forecaster.com

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