The Dollar was lower against the Yen Tuesday after Japan’s government expressed concerns over persistent weakness in its currency, sparking fears of a sudden spike in the Yen. UsdJpy slumped to a 122.81 session’s low after Japanese Finance Minister Koji Omi warned about the risks of one-way currency bets and said the government is watching the Yen’s foreign exchange levels �very closely�. Warning about Yen weakness by Japanese officials have been made before, but analysts noted the remarks have been made more frequently in recent weeks and are a bit stronger than before.
Sterling reached as high as 2.0017 Tuesday, its highest level in nearly two months, after Bank of England Deputy Governor John Gieve said UK interest rates may not be high enough yet to bring credit and nominal demand growth down to sustainable levels. This further reinforced expectations that the England’s Central Bank could lift its key bank rate from the current 5.5% when it meets in July.
News and Events:
The Dollar was lower against the Yen Tuesday after Japan’s government expressed concerns over persistent weakness in its currency, sparking fears of a sudden spike in the Yen. UsdJpy slumped to a 122.81 session’s low after Japanese Finance Minister Koji Omi warned about the risks of one-way currency bets and said the government is watching the Yen’s foreign exchange levels �very closely�. Currency markets bets are heavily one-sided in favor of Yen weakness through the carry-trade mechanism, in which investors borrow Yen to take advantage of Japan’s ultra-low interest rates, and then sell it to buy higher-yielding currencies. Warning about Yen weakness by Japanese officials have been made before, but analysts noted the remarks have been made more frequently in recent weeks and are a bit stronger than before.
UsdJpy was down -0.39% at 123.09, while the EurJpy traded down -0.6% to 165.36. Some currency analysts suggested the market may be making too much of Omi’s remarks and said if the purpose of such verbal intervention was to halt the weakness, it probably wouldn’t work.
US economic data came in mixed Tuesday, leaving traders with little reason to push the Dollar in either direction against the Euro. Consumer Confidence fell to its weakest reading since August. The Conference Board (a private research group) said its index of consumer confidence for June retreated to 103.9 from a revised 108.5 in May. Economists expected a 105 reading in June. But data on New US Home Sales for May, released at the same time, was not nearly as bas as economists had expected. Sales decreased by 1.6% against expectations of a 6.2% drop.
Elsewhere, Sterling reached as high as 2.0017 Tuesday, its highest level in nearly two months, after Bank of England Deputy Governor John Gieve said UK interest rates may not be high enough yet to bring credit and nominal demand growth down to sustainable levels. This further reinforced expectations that the England’s Central Bank could lift its key bank rate from the current 5.5% when it meets in July. The Bank left rates on hold at a meeting earlier this month, a decision Gieve opposed in favor of a tightening. The Australian and New Zealand Dollars, which have been surging on the back of carry trades because the official cash rates by the Central Banks of those countries are among the highest in the world, reached fresh multi-year highs against the Dollar on Tuesday.
AudUsd touched 0.8511, its high level since 1989, before dropping -0.33% to 0.8435. NzdUsd touched 0.7693, its high mark over the past 25 year. Analysts pointed to these levels to argue that carry trades remain alive and said Yen weakness is likely to continue despite its modest gains yesterday.
Today’s Key Issues (time in GMT):
09.30 CHF June KOF Swiss Leading Indicator 2.00 vs 1.96
10.00 UK June CBI Distributive Trades 25 vs 31
11.00 US June 22nd MBA Mortgage applications previously -3.4%
12.30 USMay Durable Goods Orders -1% vs 0.8%
12.30 US May Durable Goods Orders ex-trans 0.3% vs 1.9%
16.55 US Paulson speaks at Investing Event at NYSE
22.45 NZD 1Q Current Account Balance -2.330B vs -3.929B
22.45 NZD 1Q Current Account Balance -14.00B vs -14.44B (YoY)
23.50 JPN May Industrial Production 0.8% vs -0.2% (MoM)
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 2.0017 high yesterday. 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 had hit 124.15 Friday high but reversed gains in the last two sessions down to 122.81 yesterday. Strong support is located at 122.22 (former Trendline). Renewed advance through 124.15 will reopen 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).
<!-- 
–>
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland