• This morning, traders are shunning the safe haven yen as market confidence starts to return. The USD/JPY is up 0.54% to 82.20, while the GBP/JPY is strong, up 0.95%. The EUR/JPY is not far behind at +0.5% with the AUD/JPY up 0.3%.
• Aside from the yen, the US dollar is stronger against other currencies with gains of 0.2% against the Aussie dollar, New Zealand dollar and Swiss franc. The two currencies holding firm are the British pound and Canadian dollar.
• This morning, UK house prices showed an unexpected gain of 0.3% month on month, increasing speculation that the UK's Bank of England has room to hike interest rates. The GBP/USD is up 0.36%, hitting a 13 month high above recent support.
• Interest rate speculation is also behind some of the recent strength in the USD/CAD with traders looking for a hawkish message from the Bank if Canada this afternoon.
Coming up today
• Coming up today we have UK manufacturing PMI at 09.30 with a drop to 61.50 expected. UK net lending to individuals is expected to rise to 0.3bn.
• At 10.00 we have the UK inflation report hearings.
• The Bank of Canada interest rate statement follows at 14.00 with no change to the 1% benchmark rate expected.
• US ISM manufacturing PMI follows at 15.00 with Fed chairman Bernanke's testimony before congress starting at the same time
Bet Idea:
• Rate hike speculation is pushing the British pound to a 13 month high against the US dollar along with two days of big gains against the yen. While today's inflation report is likely to show inflationary pressures, a rate hike is by no means a full gone conclusion.
• The GBP/USD's recent push may have over extended which could set up a reversal trade.
• One way to play this now would be to predict that the GBP/USD will close today below 1.6300 (or 20 pips below current levels). If successful, this could return 126%.
There looks like there could be a little more upside today before a pull back comes so this trade is ideally best left until the GBP/USD is above 1.6500.
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