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.
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