21:00 GMT- Jan 8 (global-view.com) January can be the most difficult month of the year for currency trading. Most years dealers overload on positions at the end of the previous year and then have to dig themselves out of a hole for most of January. This year it did not appear that dealers had overloaded positions coming into January. They have made up for that in the past week. Early in the year it had appeared that the EURUSD was headed higher, but then in the past week, momentum and sentiment seemed to have changed to negative.
Now in the past 24-hours sentiment seems to have turned back positive in favor of the USD vs. the EUR. At the same time we have also noted that there has been good selling of the EUR on its crosses.
We have been looking for the reasons behind this price move. Market chatter has ranged from rumors (denied) that German Chancellor Merkel was going to resign, to comments over the past two days by ECB President Trichet where he seemed to be talking up the USD vs. the EUR for the second straight day.
When asked if the EUR was too strong following the monthly ECB meeting on Thursday, Trichet answered by quoting Fed Chairman Bernanke and Treasury Secretary Geithner that the U.S. supports a strong USD. This implied the ECB is not pushing for a stronger euro. He did not appear to be suggesting that they would be driving the euro lower but his comments are undermining EURUSD support.
The ECB seems to be increasingly worried about the weak state of the Eurozone economy. Another significant weight on the Euro has been growing concerns about the Greek sovereign debt situation. The EU seems to be taking a very hard line with the government. No bailout is coming from the EU, but they appear ready to help to pick up the pieces once the government has made all the difficult decisions.
Trade in the JPY has been particularly difficult. It appears that early fiscal yearend repatriations may have been offsetting renewed outflows as the JPY reassumes its role as the primary carry trade financing currency. Fin Min Kan modified his posture in favor of a weaker JPY to a view that the markets should set the value of JPY. Kan also has said that he must give sufficient consideration to expectations and hopes held by the business sector on the yen exchange rate.
We are still concerned that Japan could slip back into deflation and that the JPY will be forced to weaken further over time. A sharp decline in factory orders underscored the deflationary problems in Japan that we have been citing here in recent weeks.
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John M. Bland has been involved in the forex market for more than 30 years, including as a corporate advisor, institutional trader, fund manager and independent trader. He is a co-founder of www.global-view.com, the leading forex discussion site and home of the original forex forum. Global-View is a place where forex traders come for currency trading , the latest rumor, breaking news and forex trading flows.
