Yen rallies as investors unwind risks in high volatility markets...
The Yen held near 10-week highs against the Dollar after posting its biggest jump in a year as investors’ unwound risky trades on fears of rising volatility in financial markets. In additions, the decline in global stock prices including the biggest fall in Chinese stocks prices in a decade, soft US economic data and growing tensions with Iraq forced investors to cut exposure to risk. The sell-off in the Dollar came after a report showed an unexpectedly sharp drop in US Durable Goods Order in January, adding to speculation the Federal Reserve may cut interest rates later this year to support a slowing economy.
News and Events:
The Yen held near 10-week highs against the Dollar after posting its biggest jump in a year as investors’ unwound risky trades on fears of rising volatility in financial markets. The decline in global stock prices including the biggest fall in Chinese stocks prices in a decade, soft US economic data and growing tensions with Iraq forced investors to cut exposure to risk. The sell-off in the Dollar came after a report showed an unexpectedly sharp drop in US Durable Goods Order in January, adding to speculation the Federal Reserve may cut interest rates later this year to support a slowing economy.
The US Durable Goods Order fell by a massive 7.8% in January, dragged down by big falls in aircraft, motor vehicles and machinery. Core Orders fell by 3.1%, more than reversing the 2.7% increase in December. Consensus was -3% for Headlines and -0.2% for Core. In detail, the decline in Computer orders is disastrous given that this was the month when Windows Vista made its debut.
The US Consumer Confidence unexpectedly jumped to its highest level, 112.5 from a revised 110.2 above the consensus 108.5, this was largely due to a sharp increase in the Present Situation Index rather than the more looked Expectations Index. The strength of the Present Situation Index is probably largely a reflection of the continuing good performance of the labor market.
Housing market seems stabilizing as existing Home Sales jumped to 6.45m in January from a revised 6.27m above consensus of 6.24m.
Demand for Yen accelerate as investors unwound “carry-trades” after the drop in Us Durable Goods and the sharp rise in Chicago Board Option Exchange Volatility Index (VIX) to more than 70% before closing up 64%. The Yen also rallied against the Australian Dollar, New Zealand Dollar and Canadian Dollar; all popular targets of Carry-trades by speculators.
EurUsd ended up 0.21% to 1.3193 near its two-month high 1.3260 hit in early January. UsdJpy fell to 118.10 -2.45% its biggest daily loss in a year. EurJpy dropped to 156.20 -2% and GbpJpy -2.16% to 231.79.
Today's Key Issues:
Euro 8:55 GMT: February German Unemployment Change expected -40k vs 106k and Unemployment Rate seasonally adjusted expected 9.4% vs 9.5%
Euro 10:00 GMT: February Euro-zone Consumer confidence expected -6 vs -7 and Industrial confidence expected 5 unchanged
Euro 10:00 GMT: January Euro-zone Unemployment rate expected 7.4% vs 7.5%, Consumer Price Index expected -0.5% vs 0.4% (MoM) and 1.9% unchanged (YoY), Consumer Price Index Core expected 1.8% vs 1.5% (YoY)
UK 10:30 GMT: February GfK Consumer Confidence survey -8 vs -7
CHF 10:30 GMT: February KOF Swiss Leading Indicator expected 1.70 vs 1.71
US 13:30 GMT: 4Q Gross Domestic Product annualized expected 2.3% vs 3.5%, Gross Domestic Price Index 1.5% unchanged, Personal Consumption expected 4.2% vs 4.4%
Euro 14:00 GMT: ECB’s Trichet speaks in at European parliament
US 14:45 GMT: February Chicago Purchasing Manager Index expected 50 vs 48.8
US 15:00 GMT: January New Home Sales expected 1080k vs 1120k or -3.4% vs 4.8% (MoM)
US 15:00 GMT: Federal Reserves Bernanke testifies on Long Term US Fiscal Challenges
The Risk Today:
EurUsd outlook again remains constructive with strong support at 1.3074 where a break is required to undermine the bull trend. Until then market looks at 1.3250 (76.4% retracement of the 1.3368-1.2865 decline). Next target is 1.3290 trendline resistance. Initial support holds 1.3150. Sentiment remains positive above 1.3074; failure to maintain this level would unlock 1.2990 (61.8% retracement of the 1.2865 to 1.3191 advance).
GbpUsd remains in 1.9403 – 1.9750 trading range for the past couple of weeks. Only a breakout from this range would mark the next key directional trend. A break of 1.9750 resistance (61.8% retracement of the 1.9917-1.9482 decline) is required to confirm the return of the bull trend.
UsdJpy recent decline from 121.65 accelerated downtrend. It broke through 120 and 119.90 supports slicing through key support at 118. Yesterday lowest 117.50, just near 117.44 strong support. A break of 118 support will bring deeper pullback towards next foothold at 117.26 and 116.65.
UsdChf weaker tone maintained with initial support at 1.2145 (61.8% retracement of the 1.1879-1.2575 rise). Penetration there would open the way for a deeper fall towards 1.2110 early January low and expose 1.1980 December low. Initial resistance holds 1.2340.