ASIA SUMMARY

After selling in London and a counter move in NY, JPY crosses made another attempt lower in Asia. USD/JPY slipped below 120 early in the session and steadily sold off. EUR/JPY saw steady selling after failing above 162.50. With the focus on the JPY, EUR/USD was not able to do much and continues to consolidate with 1.3550 area providing short term resistance.

There were two possible reasons for the weakness in the JPY crosses. One is that earlier China raised the forex reserve ratio to 5% from 4% in a move to decrease monetary liquidity, a JPY positive move. Another reason could be the redemption of a European denominated bond coupon by Japanese investors; in this case, a Japanese investor would have to sell EUR and buy JPY.

The broader theme in Asia continues to be developments out of China. In past economic cycles, China was not as large as an economic power than it is now. The Shanghai Composite also continues its parabolic rally to new all-time highs. Should the Chinese economy slow or the stock market correct, we could see the impact in other markets

Upcoming Data Release (UK Session):

Japan: (1am EDT) Leading Economic Index expected 40% vs. previous 27.3%. Coincident Index expected 22.2% vs. previous 30%.

Germany: (2am EDT) Trade Balance expected 15 billion vs. previous 14.2.

EC: (3am EDT) ECB’s Trichet speaks at Bank Regulars’ Conference in London.

UK: Bank of England’s Monetary Policy Committee meets.