Risk Selloff Continues as G20 Ignored

Risk selloff continues today with Asian equities broadly lower today following the -391pts fall in DOW overnight. Markets played little attention to the G20 statement, where the group pledged to "take all necessary actions to preserve the stability of banking systems and financial markets as required." Basically, the G20 IMF/World Bank meeting offered no surprise to the markets. Nevertheless, regarding Eurozone debt crisis, Eurozone countries will implement "necessary actions to increase the flexibility of the EFSF and to maximize its impact in order to address contagion." This is interpreted by some that Eurozone countries are leaving the options open for leveraging the EFSF fund for use in buying government debts in secondary markets.

A lot of comments from ECB officials. Vice President Constancio said "sustained buying of government paper by the central bank would only postpone problems and delay the necessary fiscal adjustments." Governing Council member Knot said that he's "now less definite in excluding a default bankruptcy than I was a few months ago". Governing Council member Liikanen said "there is a big risk that the European debt crisis contagion cannot be dammed from spreading to a global crisis." When asked about rate cut, Governing Council member Coene said "if the data in early October shows that things are worse than we anticipated we will look at the kind of decisions we have to take for that."

Technically, note that DOW breached August low of 10604 overnight even though it managed to close at 10733. The development suggests medium term fall that started back in April/May is finally resuming and could send DOW below 10000 level in near term. 

However, S&P 500, is still holding above corresponding support of 1101. Thus, there's no confirmation of such move yet. In any case, both indices are vulnerable to deeper fall. Risk aversion will likely continue to support dollar. In addition to that, a main focus now will be on whether gold can hold 1700 psychological level. We're neutral in gold for the moment and expects strong support from 1700 to bring rebound to extend recent range trading between 1700 and 1900. However, should gold breaks through 1700 with strength, deeper selloff will likely be seen and in that case, dollar's rally could accelerate with support from liquidation in gold. 

USD/JPY Daily Outlook

Daily Pivots: (S1) 75.88; (P) 76.42; (R1) 76.75; 

Intraday bias in USD/JPY remains neutral for the moment. Consolidation from 75.94 might extend further but in case of another recovery, we'd expect strong resistance from the falling trend line (now at 78.05) to limit upside. On the downside, below 76.11 will bring retest of 75.94 first. Break will confirm resumption of whole fall from 85.51.

In the bigger picture, USD/JPY is still staying well inside the falling channel that started back in 2007 at 124.13. There is no indication of trend reversal yet even though medium term downside momentum is diminishing with bullish convergence condition in weekly MACD. Such down trend is still in favor to continue to 70 psychological level. In any case, break of 80.23 resistance is first needed to indicate completion of fall from 85.51. Secondly, break of 85.51 is needed to be the first signal of medium term reversal. Otherwise, we'll stay cautiously bearish in the pair.

US Dollar Outlook Remains Highly Constructive in Current Enviornment

• EconFin meeting disappoints; Euro back under pressure
• Strauss Kahn intimates that Greek default is inevitable
• French banks could be exposed to UBS rogue trading incident
• WSJ article talk of a more balanced Federal Reserve than markets are looking for
• Yen at risk for depreciation as government set to unveil plan to deal with strong currency

Any hopes for some form of a constructive resolution to the Eurozone and Greek debt crisis over the weekend, were sorely disappointed after the EconFin meeting failed to produce any significant results. The expectation that things need to get done, and fast, is incredibly high and so long as these expectations are let down, we should see a quick deterioration in sentiment. It is therefore no surprise to see the Euro and risk correlated currencies tracking lower into early Monday. Adding insult to injury have been comments from ex-IMF Director, Dominique Strauss Kahn who basically concedes that Greece will default on its debt obligations. Additional factors seen weighing on the markets have been UBS raised estimates of losses from unauthorized trades executed by rogue trader Kweku Adoboli. A WSJ article cites someone close to the story who says that French banks may be among the counterparties to the fake trades.

Relative performance versus the USD on Monday (as of 10:00GMT)

1. JPY +0.01%
2. CAD -0.39%
3. GBP -0.41%
4. NZD -0.89%
5. CHF -0.91%
6. EUR -0.99%
7. AUD -1.19%

On the other side of the ocean, yet another WSJ article is gaining some traction early Monday after Jon Hilsenrath talks about the on goings at the Fed and future policy considerations. The article suggests that the Fed is more reticent than many might have thought towards its ultra accommodative bias, and failure to discuss QE3 or other radical stimulus measures should be all the more concerning to those in the dovish camp. At the end of the day it is very difficult to determine just where the chips will fall at the next meeting, but this article certainly does a good job of painting a picture which potentially could open the door for repositioning back in favor of the USD on a less aggressive accommodative central bank outlook.

Elsewhere, despite the uptick in risk aversion and flow of funds back into safe haven bids, the Yen tracks lower against even the buck, with market participants perhaps less inclined to be buying Yen on the news that the Japanese government is expected to unveil its interim plan to deal with the strong Yen early this week. It looks as though the government is now trying to consider the implementation of softer and less aggressive measures to weaken the local currency rather than resorting to aggressive intervention tactics. In our commentary from the previous week, we continue to like the idea of selling Yen aggressively at current levels, with the currency trading by record highs against the buck and due for a major cyclical reversal over the coming weeks and months. We do not see the lure of the Yen as a safe haven currency and anticipate that any additional flows into the currency from the recent measures taken by the SNB will be highly unwelcome.

All of this continues to translate into a highly favorable outlook for the US Dollar, which we expect will be the primary beneficiary from safe haven flows going forward. The Franc and Yen are no longer viable options and the ongoing deterioration within the broader global macro economy demands a flight to safety back into the highly liquid US Dollar. While the following argument isn’t necessarily relevant right now, we also see the US Dollar in a position to benefit on any upside reversal to global growth prospects, with the rebound in the global economy to likely force a material narrowing in yield differentials back in favor of the buck as the Fed looks to reverse its ultra accommodative policy.

Looking ahead, the calendar is exceptionally light in North America, with the only release coming in the form of NAHB housing due at 14:00GMT. US equity futures are tracking a good deal lower and point to an open of some 1.50% in the red. Commodity market price action is jiving well with familiar correlations and market themes with oil a good deal softer and gold managing to find some renewed safe-haven bids.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD: The sharp pullback below the July lows and establishment below the 200-Day SMA solidifies the prospects for the carving of a major lower top on the monthly chart which now ultimately projects additional declines down towards the 1.2000 area over the coming weeks and months. The latest inter-day rally off of the 1.3500 area lows has stalled out within our projected lower top region between 1.3835 and 1.4055 and a break back below 1.3500 will confirm the lower top at 1.3940 and accelerate declines down towards 1.3000. Ultimately, only back above 1.3940 delays outlook and gives reason for pause. 

USD/JPY:This is a market that looks like it trying very hard to establish some form of a base after recently setting fresh record lows just under 76.00. Although the downtrend remains intact and has been fairly intense, longer-term studies welcome the prospects of the formation of a material base and shift in the overall structure. Price action over the past several days has been confirming, with the market very well supported in the 76.00’s and unable to extend the downtrend to fresh record lows. Instead, the break back above 77.00 is looking more and more constructive, with the weekly chart also showing bullish tendencies after quietly putting in three consecutive positive closes. From here, we look for the establishment back above the 50-Day SMA at 77.90 to reaffirm our recovery outlook and accelerate gains towards next key resistance by 80.25 further up. Ultimately, only a daily close back below 76.50 would give reason for concern.

GBP/USD: Overall price action seems to suggest that this market could once again be looking to roll over in favor of some fresh medium-term declines. Any gains in recent months have proven to be very well capped above 1.6500, and this latest break back below 1.5780 opens the door for a pick-up in bearish momentum towards key support by 1.5345 further down. Any interday rallies are expected to be well capped below 1.6000, while ultimately, only back above 1.6500 would give reason for concern. 

USD/CHF: A recent acceleration of gains beyond critical resistance and a previous lower top at 0.8550 confirms bullish bias and from here, we see room for fresh upside above 0.9000 and towards 0.9500 over the coming days. Look for any setbacks to be well supported above previous resistance now tuned support at 0.8550 on a daily close basis, while ultimately, only back under 0.8200 would delay. A break and close back above the 200-Day SMA for the first time in several months will provide more ammunition for our highly constructive outlook.

 

Written by Joel Kruger, Technical Currency Strategist

 

If you wish to receive Joel’s reports in a more timely fashion, email jskruger@dailyfx.com and you will be added to the distribution list.

        

DAILY TECHNICAL OUTLOOK ON USD/JPY

USD/JPY - 77.52

Dollar's rebound from 77.15 to 77.59 signals pullback yesterday signals pullback from Tuesday's high of 77.73 has ended earlier at 77.07 and upside bias remains for rise from August's lifetime low of 75.95 to extend gain toward 78.30/40, however, loss of momentum should prevent sharp move beyond 78.60/70 and bring retreat.  
 
On the downside, below 77.00 support would indicate a temporary top is in place and may yield correction to 7670/75 but 76.42 should remain intact.

Resistance	Support
78.61 - 61.8% r of 80.25-75.95 78.10 - 50% r of 80.25-75.95 77.73 - Tue's high	77.07 - Wed's low 76.72 - Tue's low 76.42 - Last Wed's low

. USD/JPY - 77.56... Despite dlr's wide swings vs other major counterparts y'day, the pair remained confined inside a tight range of 77.15-77.59 as traders continued to concentrate on other G7 currencies n yen crosses. . Having said that, dlr's broad-based strength n our repeated observations of the rising daily technical indicators suggest the recent erratic upmove fm August's lifetime low of 75.95 wud resume after near term sideways consolidation fm Tuesday's near one-month high of 77.73 is over n yield further headway to indicated upside obj. at 78.10, then 78.61, being a 'natural' 50% r n 61.8% r respectively of the intermediate fall fm 80.25-75.95, so trading the greenback fm long side in anticipation of such move is favoured as only a daily close below pivotal sup at 76.42 wud abort current bullish scenario. . Today, although dlr has maintained a firm undertone after y'day's rebound fm 77.15 to 77.59, abv previous strg res at 77.70/73 needed to confirm aforesaid rise fm 75.95 has once again resumed n yield subsequent gain to 78.10. Trading fm long side is suggested n only breach of 77.00 may risk retracement twd 76.72.    Click on the chart to enlarge image

Daily Report: Yen Shrugs off Moody's Downgrade and Rises as MOF's Measures Disappoints

The Japanese yen slipped initially early in the morning as Moody's downgraded Japan's sovereign rating for one notch to Aa3 with a stable outlook and on news MOF scheduled announcement at 2:30GMT. The rating agency blamed the Japanese government for large budget deficits and building up of debt since 2009 global recession, whilst unstable leadership hammered the effectiveness of the country's economic strategies. Moody's also indicated that Japan needs to achieve 3% of nominal GDP growth in order to get the nation's deficit problem in check, the plan of doubling the sales tax from 5% to 10% by 2015 may not be enough to solve the debt issue. However, the impact of the sovereign downgrade together with negative rating actions on most Japanese banks proved to be short-lived. Firstly, this was only a catch-up action with S&P's) and secondly, Moody's see current yen level is stressful to the Japanese economy but not dreadful. More importantly is the disappointment after the announcement of MOF Noda for new measures to dead with the yen strength. Japanese Ministry of Finance announced an emergency credit facility will be created at the amount of US$100 billion to assist Japanese firms to cope with the yen's strength. This facility will use dollar funds in the FX reserves to facilitate acquisition of foreign firms by Japanese firms. This emergency package is temporary and will last for one year. Nevertheless, as Noda did not mention anything about intervention and just talked about the government will strengthen its monitoring of the currency market for excessive speculative moves and has asked financial firms to report of their FX positions for the period to end of September, the Japanese yen rose again after the announcement. Still noted bids around 76.45/50 and further out at 76.00-10 with stops remain below 75.90 whilst on the upside, offers from exporters are lined up at 76.85-95 with some stops seen at 77.00 but sizeable stops only emerging above 77.25/30.

The greenback rebounded against other major currencies with EUR/USD slipped from day's high of 1.4442 to 1.4387, once again due to risk aversion as Asian equities are all in the red zone. Yesterday's comments from PBOC adviser Xia saying the FX reserve should be used to buy resources, energy and equities rather than euro debts, seemed still pressuring the euro. In addition, Finland Prime Minister told reporters that he would say yes if Finland could drop out of the Greek bailout plan. This also caused concerns over the effectiveness of the rescue package for eurozone debt crisis. Last in the line of negative comments on euro was former Fed chairman Alan Greenspan, who simply said that the euro is breaking down whilst U.S. is not yet in a double-dip territory. At the moment, bids are still noted at 1.4380-90 for protection of stops below 1.4370 and 1.4345/50 whilst offers from Japanese names (EUR/JPY) related are tipped at 1.4440-50 and further out at 1.4500-10 with stops placed above 1.4520 and 1.4550.

The Swissy extended yesterday's rebound on the back of active buying in EUR/CHF (jumped from yesterday's low of 1.1315 to today's high of 1.1460) and dollar's broad-based strength against European currencies. It seemed that recent actions by Swiss National Bank, including zero rates and intervening in the forward market did put a floor on the USD/CHF and EUR/CHF. More and more analysts are expecting the headline pair to retest last week's high of 0.8020 in the near term. We heard bids from model funds are located at 0.7880/85 whilst offers from European names remain at 0.7990-0.8000. With investors still hoping Fed Chairman Bernanke to announce QE3 on Friday in Jackson Hole speech, dollar's upside is likely to be limited.

Elsewhere, Asian names were seen selling aussie this morning partly due to the release of soft Conference board leading index (-0.8% vs previous -0.1%) and weaker-than-expected construction work done in Q2 (0.7% vs forecast of 1.0%). At the moment, offers are still noted from 1.0500 up to 1.0550, stops at 1.0470 were triggered but bids from real money accounts are still noted at 1.0450/55.

USD/JPY Daily Outlook

Daily Pivots: (S1) 76.43; (P) 76.68; (R1) 76.89; 

USD/JPY continues to stay inside tight range of 75.94/77.19 and intraday bias remains neutral. More consolidative trading would be seen and above 77.19 will bring another recovery. But we'll stay bearish as long as 80.23 and expect more downside ahead. Break of 75.94 will confirm decline resumption and should target 100% projection of 81.46 to 76.28 from 80.23 at 75.05 next.

In the bigger picture, USD/JPY is still staying well inside the falling channel that started back in 2007 at 124.13. There is no indication of trend reversal yet even though medium term downside momentum is diminishing with bullish convergence condition in weekly MACD. Such down trend is still in favor to continue to 70 psychological level. In any case, break of 80.23 resistance is first needed to indicate completion of fall from 85.51. Secondly, break of 85.51 is needed to be the first signal of medium term reversal. Otherwise, we'll stay cautiously bearish in the pair.

Daily Report: USD/JPY Bounces from Fresh Record Low on Intervention Fears

After hitting a fresh record low of 75.94 last Friday, the greenback finally rebounded this morning to a 1 ½ week high of 77.23 on active buying by an U.S. name (on behalf of a Japanese institutional investor), However, the currency pair ran into heavy offers by exporters and has retreated back around 76.70/75 due to lack of real action from Japanese officials. Although Ministry of Finance and even Japan's Prime Minister both came out and warned about the one-sided move in Japanese yen, as comments were pretty much the same as before, i.e. excessive Yen rise has a negative impact on the economy and the government is ready to take decisive action against any speculative and excessive moves if necessary, not much effect on the FX market, Finance Minister Noda added that it is too early to reach a conclusion on the BOJ/MOF intervention earlier this month (4 Aug), however, traders need something more solid in order to stop them from buying the Japanese yen. Over the weekend, a report from Nikkei business daily (Nikkei Shimbun) suggested that the Japanese government was considering intervention plus a comprehensive set of policy measures to stop the rise in yen which is dampening the nation's economy. The article indicated once Prime Minister Kan steps down, new measures will be implemented, studied easing measures include providing support to make high value-added product, expanding low interest loans to small and mid-size businesses and third supplementary budget. Another factor pushing the yen higher was risk aversion with weakness in global equity markets last Friday (Hang Seng and Nikkei 225 are still in red zone). Although some traders expect the USD/JPY to rally like the USD/CHF after the government announces new set of easing policy and intervenes the currency market again this week, if the intervention by BOJ/MOF remains unilateral, impact on the currency pair will still be short-lived. At the moment, bids from importers and U.S. banks are reported at 76.25-30 and 76.00 whilst offers from exporters remain from 77.00 all the way up to 77.50.

Although aussie rose in tandem with euro last Friday to a high of 1.0482, the currency pair met good selling by an Asian fund and pressured AUD/USD back to around today's low of 1.0363. Comments from Australian Treasurer Wayne Swan also seen undermining aussie as he said the high Australian dollar was placing tremendous pressure on trade exposed industries. Risk aversion led selling in AUD/JPY also drag aussie lower today with offers now reported in the region of 1.0440-60 (stops above 1.0475-85 and further out at 1.0520) whilst bids (also in AUD/NZD and AUD/JPY) from Japanese marginal traders, European names and real money investors are tipped at 1.0330 and 1.0300.

Against the European currencies, euro retreated from Friday's high of 1.4453 and locked in narrow range in part due to contradict comments from EU officials. ECB's governing member Nowotny was quoted in an Austrian magazine that he is fearing EMU states will not adopt EFSF revisions by end of October. On the other hand, German Finance Minister Schaeuble gave more upbeat remarks as he said the euro remains a stable currency and market correction on the downside has been exaggerated, there is no reason for lasting concerns. He also comments on German economy, indicating there is no sign of a recession and the country's labor market is very positive. This week's focus will be on peripheral yields in particular Greece, countries including Netherlands and Austria insisted on receiving collateral against their bailout loans. Once again the Swiss newspaper, SonntagsZeitung claimed that the Swiss government expects the Swiss National Bank to set the target for EUR/CHF peg at 1.2000 or above. The report also suggested that there are increasing pressure on SNB to take further action to weaken the Swiss franc.

Despite rising to a 3 1/s month high of 1.6618 last Friday (on the release of better-than-expected UK public finance data at -2.0 billion GBP), cable then retreated and gave back most of Friday's gain on speculation that Bank of England may expand the QEP. No data is due today with a light orders book, bids from UK clearer are reported at 1.6430-40 whilst offers are noted quite far at 1.6540-50.

USD/JPY Daily Outlook

Daily Pivots: (S1) 75.99; (P) 76.48; (R1) 77.02; 

The strong recovery today and break of 76.96 minor resistance indicates that a temporary low is formed at 75.94 and intraday bias is turned neutral. Some consolidations would be seen above 75.94 first and stronger recovery might be seen. But after all, we'll stay bearish as long as 80.23 and expect more downside ahead. Break of 75.94 will target 100% projection of 81.46 to 76.28 from 80.23 at 75.05 next.

In the bigger picture, USD/JPY is still staying well inside the falling channel that started back in 2007 at 124.13. There is no indication of trend reversal yet even though medium term downside momentum is diminishing with bullish convergence condition in weekly MACD. Such down trend is still in favor to continue to 70 psychological level. In any case, break of 80.23 resistance is first needed to indicate completion of fall from 85.51. Secondly, break of 85.51 is needed to be the first signal of medium term reversal. Otherwise, we'll stay cautiously bearish in the pair.

Daily Report: Euro and Sterling Trade Lower on Massive Risk Aversion as Global Equities Selloff Intensifies

The single currency and sterling both dropped on risk aversion, USD/JPY also fell as stock markets as Asian stock markets followed the selloff in European and U.S. equity markets and tumbled, most European indices slipped over 3% (STOXX 50 and FTSE 100) with German DAX dived over 5%, then U.S. major indices were also sharply lower, DJI (-5.55%, biggest selloff since December 2008), S&P 500 (-6.66%) and NASDAQ (-6.9%). Nikkei 225 and Hang Seng opened lower this morning and Nikkei broke 9000 and currently still down by 2.3% whilst Hang Seng once plunged over 6% below 20000 but has rebounded from low. The greenback against the Japanese yen back to the launching pad level right before Bank of Japan intervened the currency market last week, however, still heard decent bids around 77.00. Japan's Finance Minister Yoshihiko Noda repeated today that he is closely watching the financial markets, then BOJ Governor Masaaki Shirakawa also said that he is worried by volatile exchange rate and excessive yen rise would have a negative impact on the country's economy, however, early comments from Noda saying G7 did not discuss specifics on intervention in the meeting yesterday gave traders signal that there may not be joint intervention like back in March. USD/JPY did rebound briefly on verbal warnings from Japanese officials but the pair was down again due to the lack of real action by BOJ/MOF. Bids are still noted from 77.00 down to 76.50 with sizeable stops remain below 76.20 and 76.00, On the upside, offers are lined up around 77.80-90 with some stops seen at 78.00 but more selling interest should emerge around 78.50 with next batch of stops located at 79.10 and 79.50.

Intensified risk aversions on free falling European and U.S. shares pressed euro sharply lower yesterday from 1.4432 to as low as 1.4130, statements from Standard & Poor's also bough relief to the greenback as the rating agency indicated that despite the downgrade of U.S. sovereign rating, the ratings of some states and local government will be kept and stay above the statues of the sovereign, S&P's also stated that rating on U.S. banks will not be affected by the downgrade of nation's sovereign. Having said that, the single currency rebounded in Asian session after finding decent demand from sovereign names, unwinding in EUR/JPY as Hang Seng recovered almost 50% of early losses also seen supporting the pair. Good bids from same parties are still noted from 1.4150 down to 1.4130 with stops placed below latter level, more buying interest is likely to emerge around 1.4100 and 1.4070 with next batch of stops below 1.4050. On the upside, offers are reported at 1.4250-60 and further out at 1.4300.

Sterling basically followed euro's foot-steps, dropped throughout yesterday and hit a low of 1.6269 this morning on massive risk aversions and youth riots in London, however, cable also rebounded from low as Asian bourses bounced off lows. The release of better-than-expected UK data also seen lifting sterling, BRC sales data came in at 0.6% versus forecast of -0.5% and RICS House Price data also showed higher-than-expected number at -22.0% against consensus of -28.0%. The British pound is likely to confine in narrow range ahead of the release of UK June industrial and manufacturing production data at 08:30GMT with forecast at 0.4% m/m and 0.2% m/m respectively. Order books are relatively light today with some offers tipped at 1.6350-60 and 1.6380-90 with stops placed above 1.6400 whilst bids from Asian and Middle East sovereign names noted from 1.6300 down to 1.6270 with stops placed below 1.6250-60.

Continued safe-haven demand pushed Swiss franc higher again and Swissy was hovering near its record low formed at 0.7480 and stops below this level are in focus with option barrier tipped at 0.7450, offers are reported at 0.7650 with stops only emerging above 0.7700 and 0.7750.

AUD/USD Daily Outlook

Daily Pivots: (S1) 1.0093; (P) 1.0272; (R1) 1.0363; 

AUD/USD dives to as low as 0.9926 but drew some support from mentioned 38.2% retracement of 0.8066 to 1.1079 at 0.9928 and recovers. Intraday bias is turned neutral for the moment and some sideway trading might be seen. But near term outlook will remain bearish as long as 1.0526 resistance holds and another fall could still be seen. Decline from 1.1079 is treated as a correction in the long term up trend. Below 0.9926 will target channel support (now at 0.9652). Though, break of 1.0526 will indicate short term bottoming and will flip bias back to the upside for retesting 1.1079 high.

In the bigger picture, bearish divergence condition daily MACD suggests that rise from 0.8066 might be finished. And that's possible considering that AUD/USD has just missed a long term projection target at 1.1084. The break of 1.0390 support affirms this case and deeper decline would now be seen towards long term channel (now at 0.9652). But we will treat it as a correction only. And, as long as 0.9404 resistance turned support holds, the whole up trend from 2008 low of 0.6008 should still be in healthy status.

Daily Report: The Greenback Finally Rallies against the Japanese Yen on Aggressive Interventions by MOF

Finally, as suggested in our previous updates that the Bank of Japan did ease policy by increasing the amount of its Asset Purchase Program and the MOF also took this chance as indicated in our updates to intervene the forex market to curb recent yen's strength. The Bank of Japan increased purchasing assets (including JGBs, Treasury discount bills, CPs, corp bonds, ETSs, REITS and fix-rate lending operations) by 10 trillion yen to 50 trillion yen, the amount was well above previous raise of 5 trillion yen back in March after the 9.0 earthquake and tsunami. Although the BOJ left its call rate target unchanged at 0-0.1% unanimously, all council members agreed to temper the yen's rise to avoid further damage to the country's export-led economy. The MOF ordered BOJ to intervene the FX market on its behalf and the BOJ sold yen very aggressively from around 77.00-10, pushed the USD/JPY sharply higher to as high as 79.41 so far, lots of stops were triggered, including 77.50, 78.10, 78.50 and also 79.00. Although some traders reported offers from exporters at 79.50, dealers expect the Bank of Japan to act again in European session with next batch of stops tipped at 80.00-10. Japan's Finance Minister Yoshihiko Noda confirmed about the intervention in the forex market, he said the action was conducted by Japan itself but the MOF had communicated with other countries on the move. Whilst Noda did not provide further details on the yen selling intervention, source from Japanese news agency suggested that Japanese authorities spent around 800-900 billion yen (approx. over US$ 11 billion) this morning in Tokyo which pressed the Japanese currency lower by over 2.7%. The record amount that Japanese authorities used for intervention is 2.1 trillion yen back in September last year, BOJ governor Shirakawa will hold press conference from 07:00GMT and further details would be unveiled.

EUR/JPY also rallied in Tokyo, easily broke above yesterday's high of 110.61 to as high as 113.35, tough offers at 112.00 and 113.00 were all cleared, however, the pair's upside was limited partly due to the weakness in the single currency. Euro retreated quite sharply after hitting an intra-day high of 1.4375 (stop-hunting to trigger stops at 1.4350), surging Italian and Spanish bond yields put pressure on euro, more and more investors started losing faith on Italian economy and expected the nation to face debt crisis following Greece. However, downside is likely to be limited as some traders await the rate decision by European Central Bank later today at 11:45GMT and more importantly the press conference at 12:30GMT as the ECB is expected to keep rate unchanged but investors hoped the ECB could unveil aggressive measures to address the eurozone debt crisis such as the resumption of bond purchases in the secondary market. If ECB President Trichet does sound less hawkish as before and focus on monetary easing approaches like bond purchases, this would put extra burden on the single currency. At the moment, some bids are reported at 1.4260-70 with stops placed below 1.4250 and further out at 1.4200 whilst on the upside, offers are still noted at 1.4375/80 and 1.4400.

The British pound followed euro and fall in Aisa mainly on dollar's broad-based rally, slipped from Australia high of 1.6440 to as low as 1.6343, although cable found some support there and has recovered, consolidation should take place ahead of the Bank of England rate decision at 11:00GMT with markets expected the BOE to keep rate unchanged at 0.5% and asset purchase funds will stay on hold at GBP 200 billion. With speculations on possible QE3 in the U.S. and more debt crisis in eurozone, sterling could benefit from current atmosphere and trade with a relatively firm tone especially against the yen. We heard bids from Asian sovereign names around 1.6340-50 and also 1.6300 with some stops seen at 1.6270 and 1.6220 whilst on the upside, first offers are tipped at 1.6400 and sizeable selling interest remains at 1.6440-50.

USD/JPY Daily Outlook

Daily Pivots: (S1) 76.76; (P) 77.08; (R1) 77.38; 

USD/JPY's rebound from 76.28 accelerates further on Japan intervention and the break of 78.46 resistance indicates that a short term bottom is at least formed after USD/JPY missed 100% projection of 85.51 to 79.56 from 82.22 at 76.27. Intraday bias is back on the upside and further rise should be seen back to 79.56/82.22 resistance zone first. Though, we'd prefer to see sustained break of 82.22 (which is close to 61.8% retracement of 85.51 to 76.28 at 81.98) before confirming reversal. On the downside, below 77.84 minor support will turn bias back to the downside for 76.20. Meanwhile, break of 82.22 should pave the way to 85.51 and above.

In the bigger picture, note that USD/JPY's rebound from 75.98 low was held by medium term long term falling trend line as well as the 55 weeks EMA. Thus, down trend from 124.13 could still be in progress. Current fall from 85.51 might now extend through 75.98 towards 70 psychological level. In any case, break of 82.22 resistance is first needed to indicate completion of fall from 85.51. Secondly, break of 85.51 is needed to revive the case that USD/JPY's down trend has finished. Otherwise, we'll stay cautiously bearish in the pair.

USDJPY falls to 77.00 level on weaker US Data

The USDJPY moved sharply lower on the weaker US data today in addition to Washington budget issues. The price has found support against the 77.00 level with trendline just below this key level at 76.96.  The low in March came in at the 76.41 area in fast market conditions. At the time, the market was reeling from the “idea” that Japan exporters would need to repatriate funds back to Japan (selling dollars, buying yen in the process).   In March to stop the fall, global central banks came into the market and sold Yen (bought USDJPY).   The hardship on the country from the devastation of the Tsunami and nuclear disaster warranted the concerted effort. I do not think that concerted effort will be found now.  Today, the dynamics are different with the dollar weakness dominating.

The price bottom at 77.00 is a logical level to pause.  Traders will be eyeing the correction – marking the 38.2% of the move down at 77.255 as a level to get above that would take some of the sting of the decline away from the sellers today.   Failure to move above this level keeps the pressure on the pair.  Keep an eye on the level.

Greenback Remains Confined in Narrow Range as Traders Await European Banks Stress Tests Results

The greenback came under pressure again after the second ratings company put U.S. AAA credit rating on negative creditwatch, according to the Chairman of Standard & Poor’s sovereign rating committee, John Chambers, there is at least 50 percent chance that the rating company will cut U.S. top grade credit rating in the next 3 months, even if U.S. lawmakers settle a deal to raise the country’s debt ceiling within July, the White House still needs to reach agreement with the republicans on reducing budget deficit to cope with the country’s long term debt problems, failing to do so may lead to a possible downgrade of the AAA rating. The greenback slipped against the Japanese yen on the news to 78.89 before finding cross-related bids from Japanese importers and buying interests are lined up all the way down to 78.50 with sizeable stops remain below 78.40. On the upside, mixture of offers and stops is tipped at 79.60-70 and further out at 80.00.

According to a meeting minutes from the Bank of Japan, there are 2 members seeing potential need for more easing but with no urgent need at the moment, the committee also raised its economic assessment and considered the rising yen is a potential risk to the country’s recovery which is mostly led by export sector after 9.0 earthquake in March. The central bank also expressed concerns over some European countries may face selective credit default which resulted in safe-haven flows to the Japanese currency.

During the overnight trading session, the greenback gained some ground on comments from Fed’s Chairman Ben Bernanke who gave his second day testimony before the Congress, whilst he said earlier that economic weakness may turn out to be more persistent than previous expected and additional stimulus policy is needed, he said yesterday that the central bank is not currently ready to go on board a third round of government bond-buying.

The single currency slipped earlier in part due to comments from German Finance Minister Schaeuble who said crisis in confidence caused by Greece is endangering euro as a whole, he also Indicated that Europe’s high level debt problem cannot be solved overnight. Meanwhile, he stated that Italy is in a healthy state and should not be compared with Greece. Euro fell to as low as 1.4115 overnight before finding bids from Asian names, however, standing offers are reported at 1.4200 and further out at 1.4250 with mixture of offers and stops located at 1.4280-90. On the downside, bids from same parties are tipped further out at 1.4100 and 1.4050 with stops building up below 1.4000. Market will await European banks stress tests results due out at 16:00GMT, some analysts are expecting over 10% banks may not be able to pass the tests.

The British pound traded in very narrow range since yesterday but was able to edge higher on speculation of downgrade of U.S. credit rating and a possible QE3 after Fed's Chairman Bernanke's testimony. At the moment, some bids from Middle East names are reported at 1.6100-10 with some stops placed below 1.6050 and further out at 1.6000 whilst on the upside, offers remain from 1.6170 up to 1.6200 with stops building above the latter level.

On the data front, not much data out from Europe and UK, only trade balance of eurozone at 09:00GMT whilst a series of U.S. data are scheduled to be released today with CPI, industrial production, capacity utilization and University of Michigan Confidence index, nevertheless, the most import data should be the release of June Empire State Manufacturing index at 12:30GMT.

USD/JPY Daily Outlook

Daily Pivots: (S1) 78.53; (P) 79.06; (R1) 79.67;

Intraday bias in USD/JPY remains neutral and some more consolidations could be seen above 78.46 temporary low. Stronger recovery cannot be ruled out but after all, we'd expect upside to be limited well below 81.46 resistance and bring fall resumption. Below 78.46 will resume the whole decline from 85.51 and should target 100% projection of 85.51 to 79.56 from 82.22 at 76.27 and then 75.98 low.

In the bigger picture, note that USD/JPY's rebound from 76.41 low was held by medium term long term falling trend line as well as the 55 weeks EMA. Thus, down trend from 124.13 could still be in progress. Current fall from 85.51 might now extend through 75.98 for a new record low. In any case, break of 85.51 is needed to revive the case that USD/JPY's down trend has finished. Otherwise, we'll stay cautiously bearish in the pair.