I have been talking about this a lot, I know, still i do believe will play a big role in currency markets. I went to Wikipedia to find a definition of deflation, and it says:” is a decrease in the general price level of goods and services Deflation occurs when the annual inflation rate falls below zero percent (a negative inflation rate), resulting in an increase in the real value of money - allowing one to buy more goods with the same amount of money”, and it also says “deflation is also linked with recession, and  prevents monetary policy from stabilizing the economy because of a mechanism called the liquidity trap” (in two words, a liquidity trap is falling into a spiral that leads to monetary policy  unable to stimulate the economy).

Anyway, deputy Prime Minister Naoto Kan said Friday that the Japanese economy has slipped into a state of deflation, putting BOJ under pressure to take country out of it. You can read the whole article following this link: http://mdn.mainichi.jp/mdnnews/news/20091120p2a00m0na015000c.html

But the unspoken word in Europe, should start to be taking into account: as reported by the Federal Statistical Office (Destatis), the index of producer prices for industrial products (domestic sales) for Germany fell by 7.6% in October 2009 from the corresponding month of the preceding year. In September 2009, the annual rate of change was -7.6% too.
Same data  for euro zone show that in September 2009 compared with September 2008, industrial producer prices dropped by 7.7% in the euro area and by 7.3% in the EU27 (these figures come from Eurostat, the Statistical Office of the European Communities). I will stop here with stats not to make anyone crazy, yet we are at -7.6% and -7.7%.

I  won’t be extending with any Keynesian theory of economics, I will just ask you, what should happen both with Euro and Japanese Yen?

Yesterday I was laughing alone at home as several news services where publishing a big banker from Saudi Arab was saying that is true American economy is in bad shape, but so are all the rest. Exactly the same i have been saying for the last 3 months.

Anyway, as I also say, we should trade what it is, and not what we think it should be. At current levels, and from a technical perspective, there is no signs of change in both Yen and Euro bullish trend. Although is too late to get into them, is still too early to go against.

Ok! enough philosophy for one morning! too early to think this, really! I will start now with the more humble intra-day technical views. Enjoy!

Wall Street is falling strongly,pushing particularly commodity currencies to the upside; gold is also falling giving further support to greenback. Let’s see if majors manage to break above/under current lows/highs. That should accelerate dollar recovery. As usual, commodity currencies lead the way.

Fed’s Yellen is on the wires, saying recession in U.S. is probably over, and that the U.S. economy is growing, slow, but growing. Dollar is rising further across the board even against Japanese yen. EUR/USD is quiclky approaching to strong 1.4820/30 area. Watch that level: break under will accelerate the fall.

Dollar continues slowly by firmly regaining ground against major rivals, with EUR/USD at the 1.4860 zone ( should hold at least temporally around here), GBP/USD unchanged at the 1.6550 area, and USD/JPY shocking us all, moving more than 10 pips per day, around 90.50 ( top today likely between 90.60/70 zone). Stocks in the U.S. are barely red, yet oil and gold are losing ground, giving a it more impulse to greenback.

Better than expected U.S. unemployment data, showing unemployment clains fell y 12K to 502K. halted dollar rally, sending stocks slightly up, at a first reaction. Let’s see if it holds.

USD/JPY  is above 90.00 after ranging in 50 pips for two full days. We need a clear break aove 90.30 to confirm furhter rises there.

I don’t think any time soon, no. However, reading news around the world, come to my attention earlier today Fitch ratings for Japan and the U.K. Searching the net, i found out that “Fitch Ratings is a global rating agency committed to providing the world’s credit markets with independent and prospective credit opinions, research, and data. With 50 offices worldwide, Fitch Ratings’ global expertise, built on a foundation of local market experience, spans across capital markets in over 150 countries. Fitch Ratings is widely recognized by investors, issuers, and bankers for its credible, transparent, and timely coverage.”

Fitch Ratings warned Japan on Tuesday to keep to its borrowing target or risk a credit rating downgrade as the finance minister acknowledged the problem and tried to reassure rattled investors by saying spending had to be cut. Japanese sovereign credit default swaps spreads have nearly doubled in the past week as investors fretted that the government faces a funding crunch over its ballooning public debt, which the IMF says will spiral to 227% of GDP next year.  

Fitch  Ratings also said that the U.K.’s sovereign credit rating is most at risk among top-rated nations, saying that Britain needs “the largest budget adjustment” among countries rated AAA. And after today’s Trade Balance data, seems Pound at 1.70 is not what we can expect.

However, we know this news take a long time to be actually reflected in price behavior. Dollar remains week, and likely to keep falling across the board. But don’t talk to me about optimism and recovery for the 2010. I’m sensing we are about to get into an even harder year for the world economic recovery; and reality will slap more faces than we can imagine.

Fxstreet.com keeps growing, and has just launched a new site in Russian! Congratulations to the Fxstreet.com team that keeps working so hard to give always the best to traders around the world!

http://www.fxstreet.net/

Canada has just published their employment data; pretty bad in general, with 43.2K job lost instead of 10.K wins expected, while unemployment rate rose to 8.6% from  8.4%. Not a law, but U.S. data tends to come in line with this one. If data is so bad in America, could dollar rose today??

I will be covering Live! (YES! AGAIN!) data at Fxstreet.com home page. See you all there!

I will be covering Live! both Central Banks decisions at fxstreet.com home page. See you there!

Early to say, a warning in forex trading is always welcome and needed. Despite the strong movements we are seeing in market, we should not forget we have FOMC, ECB and BOE decision next Wednesday and Thursday ( i will be covering all live! at Fxstreet.com home page), and U.S. Non Farm Payrolls next Friday. Long term definitions will be confirmed (or not) by the end of the week.