By DailyFX – USDJPY – Carry Trade Onward.Powering the major currency pair higher were further speculative positioning on carry trade potential between the two economies…. …

Currently boasting a 400 basis
point differential, traders sided with the greenback as economic data released early
on suggested continued tightening heading into the last month of the year. Personal
spending inched higher at a 0.2 percent tick as construction spending also rose on
the month. Manufacturing activity was also bolstered as first time unemployment
claims declined slightly in comparison to previous figures. However, a little
negative news did work its way into the slew of optimism. Inflation, according to
the Commerce Department, rose only incrementally by 0.1 percent. The personal
consumption expenditure, a preferred gauge of inflation, was expected to rise 0.2
percent. As a result, market participants, although bent on a continuance of higher
interest rates even going into 2006, are beginning to consider the notion of a
slowdown in the speed at which such rates will occur. At least for now, with the
focus so strongly pointed to higher rates of return, the temporary optimism looks to
lead at least to further upside in the near term.

Technically Speaking
Bouncing off of the 118.23 support level earlier in the week, carry traders have
boosted the underlying past significant levels with ease. In the near term, bulls
have propelled the currency pair through consolidation in the overnight to break
above 120. As a result, with momentum consolidative at the moment, a retracements
to 120.11 (23.6 percent fib from the intraday move) looks probable before further
upside is witnessed. With still stronger bid sentiment, the currency pair looks
upward to 121.00.

GBPJPY

Traders Ignore Dour Data
Traders casted aside the dour data that was released in the U.K. this morning to
favor the most recent theme, higher rates of return. Although sentiment exists of
a potential rate cut by the Bank of England, rates still remain high compared to a
zero interest rate policy in the world's second largest economy. The current rate
differential is similar to that of the major currency leg, 425 basis points. As a
result, the cross synthetic soared on the session to test 209, a level not seen for
seven years. Separately, manufacturing dipped in the month according to the
Chartered Institute of Purchasing and Supply. The report, declining to a reading of
51, still remains suggestively expansive but shows dips in key components such as
new orders and employment. Additionally, retail sales volume fell to the worst in
the history of the survey relesed by the Confederation of British Industry. Falling
to a reading of negative 35, the report has led many retailers in not betting on a
miracle come the holiday season. Still troubled by lower sentiment, consumers
continue to be reserved when it comes to everyday consumption in light of stabilized
housing. As a result, the pessimistic report led market participants to anticipate
a rate cut in spurring consumption. However, as mentioned earlier by Governor
Mervyn King, the likely rate cut may not be forthcoming as policy makers will target
inflationary concerns and not retail sales or domestic demand in their decision.

Technically Speaking
Breaking through the triangle formation, the price action has rocketed higher off of
205.26 (38.2 percent fib from the intermonthly move). Now testing 209, the currency
cross is ripe for a brief turn around before further upward ground can be gained.
As a result, the first test looks to be the floor at 206.73 (23.6 percent fib) with
a less likely scenario at 205.26.

AUDJPY

Commodities Higher
Carry traders bid up the last of the crosses on the day. Comparatively, the AUDJPY
pair boasts 550 basis points between the two economies with a potential for more as
the Australian economy looks to deal with further inflationary pressures in the near
term. In addition, bolstering the incredible daily move, traders took the
opportunity to bid in line with higher commodity prices. Notably on the day, gold
bullion traded higher above the 18 year high, hitting slightly above the $500 an
ounce mark before slightly retracing. In addition, platinum contracts continued
their lofty prices after touching the record $1,000 figure. However, most of
today's correlative action was resultant of copper contracts topping all time
records at $2.10 a pound earlier on in the U.S. session. A commodity base metal,
the contract which now stands at above 45 percent for the year is fueling further
concerns over global inflationary pressures. It also bodes well for the Australian
denomination as the economy is known for producing such base metals. Ultimately,
any further upside seen in commodities may in fact lend to higher moves by the pair.

Technically Speaking
Bouncing off of the 85.83 support floor, the currency has not looked back while
steaming ahead to test the 89.50 resistance. In like fashion to previously
mentioned crosses, price action looks ripe for a temporary retracements before
making further advancement. The probable test looks to be 88.71 (23.6 percent fib
from the intermonthly move), with a secondary floor at 88.17. On the flipside, a
break above the 89.50 resistance would lead to an onslaught of the 90.00 figure.

By DailyFX