The yen fell to a 4 1/2-year low against the dollar and a record low against the euro as investors borrowed Japan’s currency to buy higher-yielding assets in the U.S., Britain and New Zealand. The currency reached the weakest since September 1992 against the pound this week and a two-decade low versus New Zealand’s dollar, both favored targets of so-called carry trades.
The Bank of Japan’s 0.5 percent benchmark is the lowest in the industrialized world and compares with the Federal Reserve’s 5.25%, the European Central Bank’s 4% and the Reserve Bank of New Zealand’s 8%.
Dollar was temporary supported yesterday after the Philadelphia Fed’s factory index jumped to the highest in more than two years in June. The jump in the US Philly Fed business activity index to 25.8 in June, from 4.2, mirrors the strong turnaround in the Empire State manufacturing index in June and the surge in the ISM manufacturing index over the past couple of months. Consensus was a modest 7.0.
News and Events:
The yen fell to a 4 1/2-year low against the dollar and a record low against the euro as investors borrowed Japan’s currency to buy higher-yielding assets in the U.S., Britain and New Zealand. The currency reached the weakest since September 1992 against the pound this week and a two-decade low versus New Zealand’s dollar, both favored targets of so-called carry trades.
Japanese Finance Minister Koji Omi told reporters policy makers will �carefully watch� the currency market. The dollar has climbed 1.8 percent against the yen this month as a jump in U.S. Treasury yields lured funds from Japan. The yield spread between 10-year U.S. and Japanese bonds widened to 3.26 percentage points today, the most in more than a week.
The Bank of Japan’s 0.5 percent benchmark is the lowest in the industrialized world and compares with the Federal Reserve’s 5.25%, the European Central Bank’s 4% and the Reserve Bank of New Zealand’s 8%. The yen extended losses on speculation Japanese officials aren’t concerned their currency is too weak. Omi declined to comment on specific currency levels, saying only that they should reflect economic fundamentals. Globally, there has been a lack of warnings from the monetary authorities on the yen’s weakness.
The yen was on course for a second week of losses against the Sterling, at 246.64 yesterday high and 247.49 today high, from 239.76 two weeks ago, as Bank of England Governor Mervyn King and three other policy makers voted to raise rates from 5.5 percent at their last meeting June 6-7, minutes released June 20 showed. The remaining five members voted to leave borrowing costs unchanged. Against the New Zealand dollar, the yen headed for a fourth week of declines at 94.90 this morning. Versus the Australian dollar, it touched 105.31, the lowest since October 1991.
Dollar was temporary supported yesterday after the Philadelphia Fed’s factory index jumped to the highest in more than two years in June. The jump in the US Philly Fed business activity index to 25.8 in June, from 4.2, mirrors the strong turnaround in the Empire State manufacturing index in June and the surge in the ISM manufacturing index over the past couple of months. Consensus was a modest 7.0, but the markets were probably hoping for a much stronger number after the news earlier in the week that the Empire State index surged to 25.8, from 8.0.
Today’s Key Issues (time in GMT):
Holidays in Finland and Sweden
08.00 EUR ECB’s Trichet speaking in Zurich
08.00 EUR June German IFO � Business Climate 108.4 vs 108.6
08.00 EUR June German IFO � Current 112 vs 112.5
08.00 EUR June German IFO � Expectations 104.8 vs 104.8
09.00 EUR April Industrial New orders -1.0% vs 2.7% (MoM)
09.00 EUR April Industrial New orders 8.7% vs 8% (YoY)
12.45 US Fed’s Pianalto gives remarks at Bank’s Conference
The Risk Today:
EurUsd is turning around 1.3400. Recent short term advance is only on hold and focus remains 1.3500 and 1.3554 resistance from early June high. Further 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 former resistance.
GbpUsd bull trend from Friday 8 June remains active and holding above 1.9900 key level putting 2.0000 key and 2.0100 trend levels into focus again. Initial support holds 1.9912 intraday 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 still strong from 123.75 Monday’s high hitting 124.13 intraday high. Further advance might open the way toward 125.57 December 2002 high. Strong support is located at 122.22 (former Trendline) and initial support holds 123.10 last Thursday/Friday conjunction.
UsdChf is placing a short term downtrend from 1.2470 last week high. 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 is looking for next support 1.2359 (23.6% retracement of 1.1996 to 1.2470 advance) and further set back to 1.2290 (38.2% retracement).
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Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland