Warnings on Japanese Yen Rally and Dollar waiting for FOMC on Wednesday
Rhetoric from Japanese officials warning against a rising Yen as “one-sided” saw the USD/JPY recover after hitting 15-month lows. The Euro slumped after the ECB’s member of the executive board Couere said the ECB would not hike interest rates before their QE bond buying ends. The Dollar managed a broad-based recovery with the USD/DXY up 0.52%.
Japanese policymakers started the ball rolling in Asia when they said that they would respond appropriately to the rising Yen. Worries are growing that a rising Yen would harm the export-reliant Japanese economy. The Euro reversed its gains after trading to highs not seen since December 2014. US markets closed early on Friday ahead of today’s holiday in observance of President’s Day. Asian markets continue their Lunar holiday with a few centers still out. We should see thinner trading conditions with perhaps more exaggerated moves.
Expect further Dollar correction with no major economic data releases today. Markets may have gotten ahead of themselves with their bearishness on the Dollar due to worries about the US current account and budget deficits.
Japanese officialdom, often referred by a generation of “more experienced” traders as “Japan Inc” began their rhetoric on the stronger Yen on Friday. Japan’s top currency official Masatsugu Asakawa warned that the recent Yen moves were “one-sided” and he was watching the currency markets more carefully than ever.
Finance Minister Taro Aso tried to reverse his remarks made on Thursday that he didn’t see the Yen moves as too strong or too weak to warrant intervention. Aso said he would deal with the currency market moves “with a sense of urgency” after the Japanese currency hit a 15 month high against the Greenback.
The yield on the US Ten Year Treasury slipped 2 basis points to 2.87%. Germany’s Ten Year Bund yield fell 6 basis points to 0.7%. The yield on the UK Ten year Gilt dropped 8 basis points to 1.58%.
The CFTC/Reuters report for the week ended 13 February gives us a picture of the speculative community’s market positioning and should affect this week’s trading.
Economic events kick off tomorrow with the RBA’s February monetary policy meeting minutes.
Wednesday sees the release of French, German, Euro-Zone and US Manufacturing PMI data. The UK reports it’s December CPI employment and average hourly earnings.
The Fed’s January 31 meeting minutes are released late Wednesday evening (early morning Thursday in Asia).
On Thursday the UK releases it’s final reading of Q4 GDP while Japan, the Euro Zone and Canada report on their latest inflation readings.
USD/DXY – The Dollar Index recovered to close at 89.076 (88.665 Friday) after trading to an overnight low of 88.25. The 88.00/20 level held and the subsequent rally back up through 88.80-89.00 resistance should herald a short-term recovery. This would depend much on the EUR/USD which is virtually 60% weight in the USD/DXY. Immediate resistance lies at 1.24
EUR/USD – After trading to 1.2555, the highest since December 2014, the Euro reversed and slumped to close at 1.2410. The catalyst was the dovish comments made by Bernard Couture, ECB executive board member. While his comments are nothing new to the markets, it’s the timing of when they were made that had an impact. Obviously, they are drawing a line in the sand at the 1.2550 level. Immediate resistance lies at 1.2470 and then 1.2500. There is immediate support found at 1.2380/90 (overnight low of 1.23933). Likely range today 1.2380-1.2440. Prefer to sell rallies.
USD/JPY – recovered from fresh 15 month lows at 105.549 to close at 106.30 (106.38 Friday morning). The verbal rhetoric from Japan Inc has begun and is likely to continue. The BOJ virtually engineered the Yen drop maintaining the Ten Year JGB yield near 0%. They are not about to give up on that now. Perhaps their line in the sand is around 105.50. USD/JPY has immediate support at 106.00 and then 105.70. Immediate resistance lies at 106.40 and 106.65. Likely range today 105.85-106.85. Buy dips.
GBP/USD – fell as UK January Retail sales missed expectations. The overall stronger US Dollar also weighed on the Pound, which closed at 1.4026 (1.4082 Friday). Sterling has immediate resistance at 1.4050 and then 1.4080. Immediate support can be found at 1.4000 and 1.3980. Likely range today 1.3990-1.4060.
AUD/USD – slipped off highs to close mildly lower at 0.7915 (0.7932 Friday). AUD/USD has immediate resistance at 0.7935 followed by 0.7950. Immediate support lies at 0.7900 and 0.7880 (overnight low was 0.7989). The RBA releases it’s latest monetary policy meeting minutes tomorrow. The Australian central bank will also release it’s December quarter wage data. Likely range today 0.7880-0.7930. Look to sell rallies.
USD/ZAR – The rand, opened at R11.62 to the dollar on Friday, strengthened to R11.56/$ during the course of the morning. However, analysts attribute this to external factors or the weakening dollar rather than local politics. The rand reached three-year highs on Thursday, supported by Cyril Ramaphosa's election as president at a sitting in Parliament
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