For full article, see attached PDF.

EURJPY<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

The EURJPY retraced approximately half of last weeks losses, as poor <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Japanese data and continued carry trade interest led the JPY broadly lower against major currencies. After remaining nearly unchanged through the Tokyo trading session, the EURJPY began moving consistently higher after Japanese officials revealed that domestic Machine Orders had fallen 16.7% on the month. Though the figure typically exhibits a good deal of monthly volatility, the recent figure represented the largest drop since 1986. As a result, traders took the opportunity to offer the JPY lower ahead of the upcoming G7 summit. The overall bearishness following the result was enough to cut expectations of an October BoJ hike to 25 percent. Indeed, Japanese 10-year bonds likewise reflected lower interest rate expectations, with yields 6 basis points lower to 1.615 percent. Given overall Yen weakness, however, some analysts claim that the upcoming G7 summit will provide discussion on strengthening a relatively undervalued JPY. As such, look for the coming week of trading to tell us if this speculation will be enough to stem the Yen declines.

GBPJPY

Broad Yen weakness spilled into the GBPJPY pair, as bearish UK data seemingly did little to slow the currencys daily ascent. Despite GBP weakness against other major currency pairs, it was able to rally against the Japanese currency to take the GBPJPY 0.6 percent higher on the day. Overnight news showed that British Producer Price inflation actually declined on a seasonally adjusted monthly basis, with input prices falling 1.2 percent in August. Output prices likewise fell, producing a 0.2 percent drop in the same month. Unlike in the Yen, however, the soft inflation data was not enough to pare bets on a future Bank of England rate increase. To the contrary, yields on UK 10-year bonds actually gained 3 basis points to 4.56 percent?their highest levels since mid-August. Thus reported carry trade interest gave the GBPJPY a bid tone on the day, but the upcoming G7 summit may actually act to temper recent gains. As with the EURJPY, we shall monitor expectations of a Yen-bullish result in the upcoming meeting of the worlds economic superpowers.

EURAUD

Recent declines in commodity prices were more than enough to push the AUD lower against major currencies on the day. This was especially pronounced in the EURAUD pair, as the Euros broader retracement of some of its recent losses has left it higher in the past 24 hours. Indeed, commodity prices saw price declines previously unthinkable. Of particular importance to the Aussie dollar, gold prices plummeted by nearly 4 percent to close at 590.00 per ounce, while aluminum shed 1.24 percent to 2637.00 per 25 tonne contract. Gold compounded its recent slide after an Iranian official stated that the country would be willing to halt its uranium enrichment for 2-3 months pending negotiations over its nuclear program. This was perhaps in and of itself to drive the Aussie dollar lower, as Australia is the worlds largest producer of the precious metal. Regardless, analysts claim that further RBA rate hike speculation will be enough to give the national currency a bid tone in coming trading, playing out especially in the AUDNZD pair.