Currency Markets – Morning Update

The Japanese yen rose slightly against the dollar and euro in Asia Wednesday as weak Japanese stocks prodded investors into buying the safe haven Japanese currency, while some currency traders took profits on a spike overnight in the European unit. During the Asian session, which dealers said was quieter than usual ahead of the data release, the dollar declined a third of a yen to JPY94.97 compared with New York late session on Tuesday. The euro fell a little less than a third of a yen to JPY136.85. Against the yen, the euro faced a relatively greater degree of selling pressure compared with the dollar, because traders sold the common currency to lock in gains after it rose to JPY137.70, a ten-month high.

In yesterday’s trading, the Euro moved sideways after retreating from a multi month high of USD1.4445 formed on Monday. Euro zone PPI came in at 0.3% compared to economists’ forecasts of 0.2% and the market reaction to the data was somehow muted. The British pound rose near a nine month high against the dollar as positive data helped increase risk appetite. Domestic house prices rose 1.3% in July, which was much better than forecasts of a 0.2% increase. Manufacturing also expanded for the first time in more than a year in July as it climbed to 50.8 from a revised 47.4.

The Australian dollar was marginally weaker late in the Asian session Wednesday, weighed by a late downturn in equities markets and capped below recent peaks ahead of crucial employment and central bank updates due later this week. The Reserve Bank of Australia moving its policy stance to neutral from easing Tuesday was largely expected by market participants and slightly less pronounced than some investors may have been hoping for.

Currency Markets Outlook This Morning

The yen is marginally higher against major rivals Wednesday as stocks markets continue to consolidate. Some traders noted that whether the yen’s rise has staying power is uncertain. With sentiment toward the world economy improving, the currency could fall back if key economic data due later in the global day paint a rosy picture for the U.S. economy. From now traders will be closely watching for the July jobs data from payroll giant Automatic Data Processing due at 1215 GMT, and the non manufacturing index for the same month from the Institute for Supply Management at 1400 GMT. Economists  expect the employment data to log 350,000 job losses in July, compared with 473,000 losses in June. The ISM index is expected at 48.2 in July, up from 47.0 in June.

The Euro break of USD1.4500 to USD1.4505 could trigger another rally, say currency analysts, and the unit should climb toward USD1.50 over the next couple of months. European stock markets are expected to open higher Wednesday, benefiting from a positive close on Wall Street Tuesday, but gains are likely to limited as investors watch corporate earnings, particularly from the banking sector, with caution.

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Currency Market Report Overnight

Upbeat comments on the economy by Australia’s central bank governor Tuesday whetted investors’ risk appetite, boosting the Australian dollar, euro and other currencies against the yen. Reserve Bank of Australia Governor Glenn Stevens said that Australia’s economic downturn “may turn out not to be one of the more serious ones of the postwar era, in contrast to the experiences of so many other countries.” He also said in a speech to economists that it’s easier to imagine upside risks to the economy balancing out downside risks.

The Euro was bought heavily during Asia to set up a test of USD1.4300 in Europe before falling quite sharply in the US after failing at this key level once again. German GFK in August climbed to 3.5 vs. 2.9 forecast and help support the pair. The British pound rose against the dollar on Monday as confidence in the strength of corporate earnings continued to support European equities (FTSE-300 index ended the day at its highest close since November 10) and helped sterling recover losses after last week’s much weaker-than-expected U.K. GDP data. Cable hit an intra-day low of USD1.6382 in Asia and rallied back to as high as USD1.6525 versus the greenback in European morning.

The Australian dollar rushed to a 10-month high Tuesday and short end bond futures fell to a 10-month low after Reserve Bank of Australia Governor Glenn Stevens was upbeat on the economic outlook in a speech, fueling expectations that the central bank’s next move in interest rates will likely be up.

Currency Markets Today

The yen is gaining a little against the dollar and yen with Tokyo equities under pressure. Otherwise, the majors are little changed in narrow ranges as investors wait for fresh trading impulses. Looking ahead, the market will be watching for the U.S. economic data and a U.S. Treasuries auction later in the day, with weak U.S. data or a rise in long-term interest rates on a poor auction, likely to weigh on the dollar once again. Currency traders have suggested that thin trading conditions may have exaggerated the yen’s losses, and that the Japanese unit might not stay weak for long.

For the euro vs dollar offers are said to remain in place toward USD1.4300 (USD1.4299 Monday high), with talk suggesting that the figure holds an option barrier (topside of a USD1.38/1.43). A break above the figure expected to trigger stops, though any pressured move should see profit take offers quickly emerge to counter an initial break. If the rate can clear higher, it is expected to revisit the year’s highs at USD1.4339 (Jun 3). Support is seen placed at USD1.4220, USD1.4205/00. Pound traders report offers in place between USD1.6570/80 with stops placed on a break above. Rate currently holds back around USD1.6525 after the early rally extension to USD1.6558.

European stock markets are expected to open largely flat Tuesday, as the rallies that have defined the asset class for almost two weeks start to run out of steam.

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Currency Markets Overnight

Massive dollar selling by big Japanese banks taking profits after the greenback’s rise to a two week high overnight pushed the currency down in Asia on Friday, but the rise may resume next week as sentiment remains buoyant. The euro also fell against the yen due to similar profit taking by banks. Market participants sold the dollar after it rose to 95.30 overnight against the Japanese yen to take profits and adjust their holdings. It was the dollar’s highest level since July 7th, but it wasn’t able to break above the psychologically important 95.50 mark.

On Thursday, the dollar ended mixed, rallying sharply against the yen on talk of investment outflows from Japan while retreating against the Canadian dollar and other risk sensitive currencies as stocks and commodities advanced. Earlier in New York trading the euro hit a seven-week high of USD1.4292 against the greenback as rosy U.S. corporate earnings fueled optimism on the economy and dented safe haven demand for the U.S. dollar and the Japanese yen. The upbeat housing data also encouraged investors to buy higher yielding assets. U.S. existing home sales data showed a 3.6% increase month-on-month compared to the consensus forecast of 1.5%. However, in late New York trading, the euro tumbled to USD1.4118 as corporate earnings from Microsoft disappointed, fell well short of analysts expectations, along with those of Amazon and American Express.

The British pound was stronger against the dollar as positive data increased risk appetite. Domestic retail sales rose 2.9% in June from the previous year, beating forecasts of a 2.1% increase. Retail sales were much better than the previous month’s data, which were revised down to a decrease of 2.0% from a decrease of 1.6%. The Australian dollar was weaker in late Asian trade Friday, as profit taking and weaker than expected results from Microsoft dented an otherwise spirited rally in high yielding assets.

Currency Markets Outlook

The euro and other majors are broadly mixed Friday, and may see minor moves until investors sort out which direction stock markets will embark on later. European stocks are expected to open modestly lower Friday, with investors ready to bank the week’s gains amid disappointing numbers from big U.S. technology companies which failed to meet market expectations Thursday. Such greenback selling may push the dollar and euro down for the rest of the global day, but some dealers expect the currencies to rise next week on the back of reviving risk appetite.

Many traders expect the US dollar to get a boost from Japanese trust funds Monday. These funds have been rumored to be preparing to invest in dollar denominated assets very soon. The euro declined against the dollar to 1.4157 from 1.4203 in New York on Thursday. Dealers said trading is lackluster, so it may stay in a 1.4100  – 1.4200 range for the rest of the global day.

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