Forex Europe Market Update

USDJPY moved higher in Asia today following Japan's weaker than expected CPI release seeing the pair trace out a 116.43 - 116.92 range. In contrast, EURUSD traded a relatively tight 1.2748 - 1.2782 ahead of today's Jackson Hole symposium.

Indeed the focus for the USD today will be on Fed Chairman Bernanke's speech at Jackson Hole titled "The New Economic Geography and Policy Implications". Judging by the speech title, it has the potential to discuss issues of importance in the FX markets, namely global imbalances and the policies that affect them.

It is worth remembering the impact that Greenspan had on the market in November 2004 when he discussed global imbalances. Greenspan's speech helped create the impression that US officials were actively encouraging a weaker USD and contributed to huge moves in the USD against Asian currencies. While it's unlikely that tonight's speech by Bernanke would have the same impact, it could help to set the tone for the USD heading into September event risks.

We remain of the view that with the Fed tightening cycle having ended, the risks have increased that the markets will place less emphasis on interest rate differentials and more emphasis on global imbalance considerations.

As such we have a bearish profile for the USD and target EURUSD at.1.3000 and USDJPY at 114 over 1 month.

Looking ahead and there are no scheduled economic data releases of note, and hence focus will be purely Bernanke's speech at Jackson Hole at 1400 GMT.