The Yen climbed to 4-1/2-month highs against the Euro, and the Dollar rose on Wednesday as investors, weary of worsening credit sector problems, abandoned higher-yielding currencies and risky assets like equities. The Japanese Yen soared against the Australian and New Zealand dollars as investors pared back carry trades, in which low-yielding yen are borrowed to invest in higher-yielding assets.
Stock prices have become a gauge of investor penchant for risk among currency dealers, who have been buying the Yen as equities decline.
As carry trades continued to be unwound, and anxieties over credit problems spread to Europe and Canada, the US dollar became something of a safe haven and rose against most major currencies.
News and Events:
The Yen climbed to 4-1/2-month highs against the Euro, and the Dollar rose on Wednesday as investors, weary of worsening credit sector problems, abandoned higher-yielding currencies and risky assets like equities. The Japanese Yen soared against the Australian and New Zealand dollars as investors pared back carry trades, in which low-yielding yen are borrowed to invest in higher-yielding assets. “Renewed concerns about the credit markets triggered … unwinding of positions with the dollar and the yen posting further gains against most currencies,” said analysts. Mirroring stock market volatility, the Dollar fell early against the Yen, then recovered, only to decline again in late afternoon trading as the S&P 500 index turned negative on the year.
Stock prices have become a gauge of investor penchant for risk among currency dealers, who have been buying the Yen as equities decline.
As carry trades continued to be unwound, and anxieties over credit problems spread to Europe and Canada, the US dollar became something of a safe haven and rose against most major currencies.
The UsdJpy was down 1.06% at 116.30 near intraday lows of 116.25. The EurJpy traded -1.78% lower at 156.21. The New Zealand Dollar tumbled 4% to 81.8550 Yen while the Australian dollar dove 2.89% against the Yen to 95.22. The UsdChf rose 0.64% to 1.2188.
Getting a boost from the Yen crosses, Dollar rose 2.99% against the New Zealand dollar at 0.7039, and 1.87% against the Australian dollar at 0.8187.
The EurUsd fell by 0.74% percent at 1.3432, sliding for a third straight day in its worst decline in six months. Investors fretted about European exposure to the U.S. sub-prime mortgage sector, prompting speculation that the European Central Bank would not lift interest rates next month as previously expected.
Credit and housing sector problems continued to make headlines, weighing on both U.S. and European equities markets, and fueling safe-haven currency trades. Sterling, already hit by tame UK inflation data on Tuesday, fell below 1.9900 to a low of 1.9856 before modestly recouping losses to trade at 1.9877, down 0.4%. “There is still a lot of uncertainty regarding the real damage that may be caused by the sub-prime market,” said analysts. “The euro and also the Sterling could keep getting pounded.”
Today’s Key Issues (time in GMT):
<SITE>08.30 GB July Retail Sales 0.1% vs 0.2% (MoM)
08.30 GB July Retail Sales 3.4% vs 3.4% (YoY)
09.00 EU July Euro zone CPI -0.2% vs 0.1% (MoM)
09.00 EU July Euro zone CPI 1.8% vs 1.8% (YoY)
09.00 EU July Euro zone CPI Core 1.9% vs 1.9% (YoY)
12.30 US July Housing Starts 1400k vs 1467k
16.00 US August Philadelphia Fed Survey 9 vs 9.2 </SITE>
The Risk Today:
EurUsd extend losses yesterday after having break 1.3550 pivot point and early this morning breaking down 1.3500. Initial resistance holds 1.3550 pivot point and former support. Renewed strength over this may focus again on 1.3750 resistances and pivot point. Next supports are located 1.3431 strong support and 1.3309 1-year up Trendline.
GbpUsd extended downtrend into a third session to 1.9877. It broke yesterday 1.9900 heading down to 1.9808 (23.6% retracement of 1.7051 � 2.0660 2 years advance). Initial minor resistance holds 1.9960 yesterday high. Next support holds 1.9623 end of July low. Rebound looks limited to 2.0000 pivot point and former support.
UsdJpy remains weak under 119.50 resistance and last week Trendline resistance at 119.78. Market broke yesterday 116.58 Trendline support. Downtrend remains strong and further weakness will open the door toward 115.59 Keylevel. Strong resistance holds 119.50 end of July high. Initial resistance holds 118.38 Friday/Monday closing/opening.
UsdChf extend its recovery from early August 1.1819 low to 1.2183 (38.2% retracement of 1.2771 � 1.1819 decline). Further strength may open the way toward 1.2295 (50% retracement). Market traded down to 1.1819 last week new key support. Former resistance 1.2044 marks initial support.
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland