The Japanese yen strengthened broadly on Monday, hitting a 2 �-year peak versus the Dollar as a rout in global stocks prompted investors to sharply reduce their exposure to risky, higher-yielding assets. The sell-off in stocks was broad and deep, with major European and Asian markets. Investors rushed for the safest and most liquid assets they could find, such as government bonds. Futures markets are betting on the Federal Reserve cutting US interest rates this year down to 2.50% or lower, including as much as a 75bp cut at the bank’s policy meeting next week. On Europe, rates futures are now discounting more than 50bp cut from the European Central Bank this year compared with expectations at the start of the month of the bank staying on hold at 4% all year. Monday’s choppy moves were on thinner volumes than usual, with US markets closed for the Martin Luther King Jr. holiday.
News and Events:
The Japanese yen strengthened broadly on Monday, hitting a 2 �-year peak versus the Dollar as a rout in global stocks prompted investors to sharply reduce their exposure to risky, higher-yielding assets. The sell-off in stocks was broad and deep, with major European and Asian markets. Investors rushed for the safest and most liquid assets they could find, such as government bonds. Markets moves were fuelled by worries that the fiscal stimulus package worth up to $150 billion floated by President George W. Bush on Friday will not be enough to shore up a US economy that is feared to be either close to, or already in recession.
Yesterday, UsdJpy was down 1.16% at 105.63, intraday low and 2 �-year low. EurJpy dropped 2.51% to 152.33 lowest of the day.
Futures markets are betting on the Federal Reserve cutting US interest rates this year down to 2.50% or lower, including as much as a 75bp cut at the bank’s policy meeting next week. This aggressive pricing has also spilled over into European markets, where rates futures are now discounting more than 50bp cut from the European Central Bank this year compared with expectations at the start of the month of the bank staying on hold at 4% all year.
EurUsd fell 1.37% on Monday to 1.4422, slipping below 1.4500 for the first time in almost a month. GbpUsd was lower by 0.77% to 1.9404 close to 1.9000 intraday low. UsdChf jumped up 1.05% to 1.1099. Monday’s choppy moves were on thinner volumes than usual, with US markets closed for the Martin Luther King Jr. holiday.
Today’s Key Issues (time in GMT):
03:20 JPY Bank of Japan left rate unchanged at 0.5%
08:15 CHF November Retail Sales 2.9% vs 6.1%
08:30 EUR Finance Ministers continue their meeting in Brussels
11:00 GBP January CBI Industrial Trends survey 0 vs 2
13:00 USD Paulson speaks on the economy, Washington
13:30 CAD November Retail Sales 0.2% vs 0.1% (MoM)
13:30 CAD November Retail Sales ex-autos 0.5% vs 0.0% (MoM)
13:30 CAD Bank of Canada interest rate decision 4% vs 4.25%
15:00 USD January Richmond Fed Manufacturing Index -2.5 vs -4
20:10 GBP Bank of England governor King delivers speech, Bristol
22:00 USD ABC/Wash Post Index -24
The Risk Today:
EurUsd Retreated form last week highs 1.4922 down to yesterday low 1.4411. Current trading range is set 1.4366 � 1.4922. Market traded as high as 1.4922 last week, in sight of 1.4967 resistance November high. Further strength might open the door up to 1.5000 key level. Yesterday 1.4411 low marks support. With 1.4500 pivot cleared down, market will look for 1.4280 next support after trendline support holding 1.4311 December low.
GbpUsd remains weak having broke yesterday below 1.9500. Further downtrend pressure might open the door toward 1.9105 (50% retracement of 1.7049 � 2.1162 advance). Longs will only lock within a return over 1.9800 short term Trendline and 2.0000 key level ahead 2.0100 resistance. Initial supports hold 1.9483 11th January low and 1.9400 yesterday low.
UsdJpy remains weak having tested 105.63 yesterday low. In recent downtrend, pressure opened the way toward 106 support. Initial support holds 105.92 last week low ahead of 104.20 trendline support. Strong resistance holds 110.10 last week double top ahead of 111.92 early January high.
UsdChf January downtrend seems to come to an end rebounding from 1.0838 last week low. Market is looking for 1.1130 (38.2% of 1.1603 � 1.0838 decline). Weakness below 1.1019 will reopen the way down to 1.0759 trendline low. Initial resistance holds 1.1112 yesterday high. Early January double top 1.1191 marks strong resistance.
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland