The Dollar slipped against the Yen on Monday and Tuesday with investors growing nervous about more hedge fund failures related to rising US sub-prime mortgage defaults. In times of increased risk aversion, investors tend to sell high-yielding but risky assets funded by the low-yielding Yen.
Japan’s Finance Minister Koji Omi comments echoed remarks by officials at Group of Seven meetings in the past year referring to carry trades and suggested some concern about the pace of the Yen’s slide.
The Federal Reserve is expected to leave its benchmark interest rate unchanged at 5.25% rather than cutting them when it concludes a tow-day monetary policy meeting on Thursday.
News and Events:
The Dollar slipped against the Yen on Monday and Tuesday with investors growing nervous about more hedge fund failures related to rising US sub-prime mortgage defaults. In times of increased risk aversion, investors tend to sell high-yielding but risky assets funded by the low-yielding Yen. Analysts said a Merrill Lynch report on Monday suggesting Bear Stearns may have to bail out a second troubled Hedge Fund it manages that invested in risky sub-prime mortgages, fueled nervousness in the currency and stock markets. The investment bank said yesterday it had provided up to $3.2B in secured financing to a fund it manages that was down about 5% through the four months ended April 30.
UsdJpy slipped -0.23% to 123.57, down from Friday’s peak of 124.15, which was the highest since December 2002. EurJpy also fell -0.22% to 166.35, having reached a record high of 166.94 the previous session. Euro and Sterling were almost unchanged at 1.3464 and 1.9980. GbpUsd had popped above the 2.0000 mark for the first time in almost two months.
The Yen jumped this morning, pulling away from a 4 �-year low versus the Dollar hit last week, after Japan’s finance minister warned that markets should be aware of the risks of one-way bets against the Japanese currency. The comment by Koji Omi echoed remarks by officials at Group of Seven meetings in the past year referring to carry trades and suggested some concern about the pace of the Yen’s slide. In addition, the Bank for International Settlements warned in its annual report last weekend about the risks of carry trades and said there was �clearly something anomalous� about the yen’s weakness.
Investors also face a lot of fresh US economic data this week and will pay particular attention to Durable Goods Orders figures for May on Wednesday as well as May Core Personal Consumption Expenditures data on Friday. In addition, the Federal Reserve is expected to leave its benchmark interest rate unchanged at 5.25% rather than cutting them when it concludes a tow-day monetary policy meeting on Thursday. Signs of a rebound in US growth have helped the Dollar recover from a record low against the Euro and the Pound both hit in April.
Today’s Key Issues (time in GMT):
08.00 CHF May UBS Consumption Indicator 2.400 vs 2.346
08.00 EUR Euro-zone Current Account �2B to �5B vs �5.4B
14.00 US June Richmond Fed Manufacturing Idx -10 to 0 vs -10
14.00 US May New Home Sales 925k vs 981k
14.00 US May New Home Sales -5.7% vs 16.2% (MoM)
14.00 US June Consumer Confidence 105.5 vs 108
16.00 GB Bank of England deputy governor Gieve speaks at University of Surrey
16.30 US Fed’s Moscow speaks at Civic Federation in Chicago
23.00 AUD RBA Deputy Governor Philip Lowe speaks
23.50 JPN May Retail Sales -0.4% vs -0.6%
The Risk Today:
EurUsd Short term positive trend from last week remains active and focus shifted on 1.3500 and 1.3554 resistance from early June high. Renewed weakness below 1.3373 could open the way toward 1.3277 key support (50% retracement from 1.2872 to 1.3681 advance). Initial support holds 1.3373 last Thursday low.
GbpUsd bull trend from Friday 8 June made advance up to 2.0007 high on Monday. 2.0000 key and 2.0100 trend levels stay into focus. Initial support holds 1.9912 Friday low. On the down side, despite 1.9823 support (61.8% retracement of the 1.9733-1.9969 rise); a return under 1.9900 could deep toward 1.9700 and 1.9659 (50% retracement of the 1.9184 to 2.0134 advance) next support.
UsdJpy remains strong having hit 124.15 Friday high but reversed parts of gains down do 123.31 yesterday. Further weakness may hit 123.10 minor support (Thursday/Friday conjunction) from last Wednesday. Strong support is located at 122.22 (former Trendline). Renewed advance through 124.15 will open the way toward 125.57 December 2002 high.
UsdChf consolidates on 1.2290 support (38.2% retracement of 1.1996 to 1.2470 advance) after hitting 1.2470 high on June 14th. This 3-months high 1.2470 marks the initial resistance. Return of the Dollar bull trend would open the way for a run toward 1.2573 and 1.2771 trends high. On the current downtrend, market erased 1.2359 former support (23.6% retracement of 1.1996 to 1.2470 advance) and is holding on 1.2290 support (38.2% retracement).
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland