| ifcmarkets Intraday snapshot |
There is scope for more corrective gains above 1.4054 towards the 1.4185 area. A break above 1.4054 is required to build on the recovery off Tuesday's 1.3837 low, but Monday's completion of a bear pennant keeps the downside threat prevalent, limiting the rally to the vicinity of the pennant breakout point at 1.4178. A push below 1.3935 would prompt a setback towards 1.3871, and only below the latter would re-expose the 1.3837 low. |
| The corrective recovery off 1.5783 threatens to extend to the important 1.6011 projected resistance level. However, GBP bears have emerged at 1.5956 to defend the 1.6011 target, and only above 1.6011 would question the dominant bear tone. A push below 1.5872 would bring the 1.5783 low back into the picture, and longer-term bears are still on course for 1.5655/75 and the head-and-shoulders top pattern measured objective at 1.5370. |
| A retest of the 80.00 level is threatened, following the strong recovery off Wednesday's Asian session low at 78.48. However, the upside threat is limited to 80.00, as Tuesday's weakness completed a bear pennant continuation pattern, and 80.00 represents the 50% Fibonacci retracement level of the 81.49/78.48 decline. Backup resistance lies at 80.50. A push below 79.02 is required to re-expose the 78.48 low. |
| The recovery off 1.0525 is looking to force a break above 1.0680. Such a move would bolster Tuesday's low at 1.0525, and attract further AUD bull pressure towards 1.0768 and the July 1 reaction high at 1.0791. Longer-term AUD bulls are still uplifted by the recent completion of an eight-week bull wedge pattern. Only a reversal below 1.0579 would suggest a return to the 1.0525 low is on the cards. |
| Intervention is now inevitable. After months of respite, the yen is back in favor and, if it is to preserve Japan's recovery, the Ministry of Finance has little option but stand in the way of a fresh rally. However, the battle to stop the yen's advance could well be bloody. Upward pressure on the Japanese currency could be sustained for some time to come and this time around the Bank of Japan will find that it is fighting on its own. The last time the central bank intervened, in the immediate wake of the March 11 earthquake, other G10 central banks joined in what was seen as a mark of solidarity to keep Japan's finances afloat. After an initial rebound, the yen has slipped into a quiet trading range over the last few months as Japan started to put its economy back together again. Even the yen's traditional role as a safe haven appeared to have gone into abeyance as investment and trade flows in and out of Japan appeared to have been well balanced. But, the latest eruption in the euro-zone debt crisis, combined with growing talk of further monetary easing in the U.S., has changed all that. As investors have scrambled to sell the euro, they often become wary of buying the dollar and the yen has once again found that it is the currency of choice in these troubled times. The flows became so strong that the currency was pushed all the way up to Y78.48 against the dollar Wednesday, its strongest level since March 17. Verbal intervention by Finance Minister Noda helped push the yen back down a little but the return of upward pressure is nearly inevitable, as a recent rise in option volatilities suggest. Although recent euro selling has subsided for the moment, this will doubtless resume as the European Union's chances of resolving the euro zone debt crisis and preserving the euro grow less by the day. With Italy now on the brink of default, investors who may have once had confidence in the currency's future are now moving out. The problem is that the dollar, which would once have been their obvious destination, is looking less attractive. Negotiations to lift the country's debt ceiling are stalled and there is now increasing speculation that the Fed will still have to resort to another dose of quantitative monetary easing, or QE3. All of a sudden, the yen which had been parked in a side alley, is now back on the road as a major safe haven. At one stage, the yen's popularity helped it to post gains against the Swiss franc, that other bastion of stability in times of uncertainty. There is certainly plenty of room for the yen to rise against the dollar, given that net short positions in the Japanese currency against its U.S. counterpart stood at an all time high of $3.5 billion earlier this week. |
| The absence of yet more negative news for the euro zone saw currency traders rediscover their appetite for risky bets in European trading Wednesday, but yen strength also bore testimony to the continued interest in safe-haven investments. The underlying tone remains nervy in the absence of fresh direction for euro-zone policymakers, with a key Italian bond auction still to come Thursday and a decision still pending on whether to call an emergency euro-zone summit for Friday, when European bank stress test results are due. With equities firmer and peripheral euro-zone bond spreads mostly tighter, currency traders lifted the euro to a session high of $1.4111 against the dollar and above CHF1.17 against the Swiss franc, erasing most if not all of yesterday's losses. Currencies such as the Australian and Canadian dollar, which typically rise when sentiment improves, also notched up chunky gains against the dollar, helped by stronger-than-expected Chinese economic growth data. "Things have settled down...which has allowed the euro to recover but I would not be getting too carried away," said Ian Stannard, senior currency strategist at Morgan Stanley in London. "There's still very little comfort to draw from the events in the euro zone at the moment. One of the problems has been the lack of guidance from political and monetary authorities, which has led to the recent volatility," Stannard said. The robust Chinese growth figures established the more positive tone in Asian trade and helped dispel any lingering gloom left over from Moody's earlier downgrade of Ireland's sovereign debt rating to junk status. But a rise in the price of gold toward record highs and a stronger yen highlighted the continued demand for safe-haven investments. |
| The dollar dropped to a four-month low against the yen in Asia Wednesday, as talks on the U.S. debt ceiling became bumpier, while mounting concerns over contagion of euro-zone debt problems left the Japanese currency as the least unattractive option. In thin trade early Wednesday morning in Asia, the dollar fell to Y78.48, its lowest since March 17. Yet unlike that day, when the greenback's slide to a post-World War II low at Y76.25 ramped up pressure for intervention-which came the following day-Japan's currency authorities seemed unlikely to wade into the market for now. "The time is not yet ripe for action" as yen-selling intervention could prove futile without progress solving the European debt woe, which has been the primary driver of the Japanese currency's recent rise, said Masafumi Yamamoto, chief currency strategist in Japan for Barclays Bank. Another reason Japan's finance ministry, which decides the country's currency policy, is unlikely to order up intervention now is that the yen's strength hasn't prompted any sharp sell-off in equities, analysts and traders said. The benchmark Nikkei Stock Average ended up 0.4% at 9963.14 Wednesday, holding well above the 9000 mark that analysts cite as a potential trigger for possible intervention. Japan's Finance Minister Yoshihiko Noda signalled growing concern over the yen's moves earlier in the day, calling them "a little one-sided," though he avoided the stronger jawboning Japanese authorities have used before to presage actual intervention. "The surprisingly steady Nikkei suggests that markets do not believe Japanese corporate profits will be severely affected by recent yen strength," said Barclays' Yamamoto. The view that Japan likely won't intervene for now gave the green light to Japanese importers and other market participants to bargain hunt the greenback after its earlier fall, dealers said. |
| The euro seesawed on Tuesday, falling below $1.39 early on contagion fears, rebounding above $1.40 on speculation that central banks might be buying euro-zone debt, and then retreating as Moody's downgraded Ireland's rating to junk. Markets remain highly sensitive to headlines surrounding the euro-zone debt crisis, as they await clarity on a second bailout package for Greece and watch closely for any signs of contagion to other member nations, especially Italy and Spain. "There's still a lot of cautiousness with holding any type of European currency outside of the Swiss franc," said Kathy Lien, director of research at GFT Forex. Moody's Investors Service struck the latest blow to the euro's confidence by cutting Ireland's credit rating below investment grade, citing continued weakness in the country's economy. Earlier in the session, jitters about Italy potentially falling prey to the debt crisis spurred investors to sell the single currency. The euro slid to a new all-time low against the safe-haven Swiss franc, while also hitting a four-month low against the dollar. Against the Japanese yen, the euro slid below Y111 for the first time since March. The euro did, however, get a momentary reprieve on unsubstantiated market chatter that the European Central Bank and possibly other central banks were looking to buy peripheral euro-zone debt and comments from euro-zone officials' signals that Greece would not be allowed to default. "We go through these fits of panic that the euro is going to collapse," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J. But "ultimately the Europeans come back and indicate that they're going to open up their wallets," which helps the euro recover, he added. |
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