Germany Ponders Austerity, US Draws Investments

Markets started the week quietly due to holidays in the UK and US but continued volatility in Japan should add some intrigue to the upcoming session. A report in the German press suggests the government is shifting its view on austerity.GBP, CAD and AUD are the only decliners vs USD this week . 2 USDCAD,  2 EURUSD, 1 of 2 USDJPY, 2 of 2 EURJPY and 1 silver trades are in progress, while 2 AUDUSD await fill. All of these trades are in the latest Premium Insights.

USD/JPY slumped to start the week as another round of worries hit the Nikkei and it fell 3.2%. The pair fell as low as 100.74 but slowly recovered back to 101.00 in US trading.

The pound was the most-active currency despite the UK holiday. Cable climbed to 1.5157 in early European trading and then slumped to 1.5100.

Most pairs were stuck in tight ranges but the day ahead will bring volatility back to the market. The highlight on the calendar is at 2350 GMT with Japan's corporate service price index. It's expected to fall 0.2% m/m.

Several media reports highlighted trends we have outlined. The first was a Spiegel report saying Merkel's government is changing its mind about austerity. The government is fearful about extended youth unemployment and tarnishing its image. Efforts to tackle long-term budgets will continue but the government is looking to boost growth in the near term. The main idea is to extend low-interest loans via the German development bank through periphery development banks to companies unable to access credit.The change in German politics is unofficial but it underscores the move away from austerity from the flag-bearers of the movement.

Another trend is investment in the United States. A report from Bloomberg highlighted plans from China's $3.4 trillion FX reserves fund to invest in US real estate. A second item was an announcement from Canada's Valeant pharmaceuticals that it would buy Bausche & Lomb for $8.7 billion. Money flowing into the US will inevitably push the dollar higher.