Although the greenback rallied across the board yesterday as the
Federal Reserve looked less likely to announce QE3, the greenback failed
to extend yesterday's gain and retreated quite sharply versus most
major currencies. In the past 2-3 trading days, the greenback started to
rebound as more and more traders changed their view and bet on Fed
Chairman Ben Bernanke may not signal addition bond-buying in today's
Jackson Hole Symposium, USD/JPY and USD/CHF surged to as high as 77.70
and 0.7989 respectively whilst EUR/USD and GBP/USD slipped to 1.4328 and
1.6260. Dollar retreated against the Japanese yen from a 2-week high
of 77.70 (as indicated in our previous update that decent offers remain
at 77.90-00). Market has been and is still yen long, with traders
couldn't push the yen much higher (this week's high is 76.47) due to
persistent bids from semi-official names and intervention fears, dealers
are forced to cover their short ahead of today's key event. Having said
that, exporters are still determined to defend the level of 78's with
heavy offers still seen from 77.80 up to 78.00 and further out at
78.30-50 (large), however, they are unlikely to sell dollar aggressive
in their usual month end transactions as they would prefer to wait for
the Bernanke's speech (due at 14:00GMT). Current retreat is threatening
stops from short-term speculators placed at 76.80 but bids from them are
still noted at 77.10 and sizeable stops remain at 76.40 with more
buying interest seen around 76.50-60. The much anticipated resignation
of Japanese Prime Minister Kan had little impact on the currency market
and new leader of the ruling DPJ party will be selected on Monday, with
former Foreign Minister Seiji Maehara, being the top-pick. However, the
economic minister Yosano said that the government will also release a
list of suggestions for the new administration on how to deal with the
strong yen, so yen traders shall closely keep an eye on the development
next Monday.
After tumbling yesterday to 1.4328 on several bad news, including
Greek yields around record high, renewed eurozone debt crisis concerns
plus rumors of a German downgrade, euro staged a stronger rebound among
other major currencies. The single currency bounced on sign of a
possible solution to the differences on the collateral for emergency
loans after a report from FT which indicated a so-called ‘euro working
group' is examining a non-cash collateral arrangement. Through this
arrangement Greece would put up either property or equity in state-owned
enterprises as a guarantee against eurozone bailout loans. FT also
reported that the euro area will discuss a new version of Finland's
collateral agreement with Greece. In addition 3 rating agencies cleared
the rumors of a German downgrade as CNBC reported that S&P's Moody's
and Fitch all affirmed their ratings on German government debt.
Moreover, news that Spanish government said an agreement had been
reached with the main opposition People's Party over plans to preserve
in its constitution limits on the public deficit, also supported euro.
Last but not least, French President Nicolas Sarkozy said after meeting
Chinese President Hu Jintao that Hu showed definitive confidence in the
euro and the European economy also seen euro positive. As key of the day
remains Fed's annual economic conference in Jackson Hole, euro is
likely to stay within recent established range of 1.4259-1.4517 ahead of
Bernanke's speech.
Meanwhile the Australian dollar benefited from upbeat comments from
RBA Governor Glenn Stevens, in his semi-annual testimony before
Parliament committee he said Australia was well positioned to tackle any
further weakening of international conditions. He also stated that
Australia's mining boom along with low unemployment and strong banking
system will assist the country to go through global uncertainties.
On the data front, before the Jackson Hole at 14:00GMT, key for the
day will be UK Q2 GDP (08:30GMT), US Q2 GDP (12:30GMT) and Aug
University of Michigan Confidence survey at 13:55GMT.
USD/JPY Daily Outlook
Daily Pivots: (S1) 76.97; (P) 77.33; (R1) 77.82;
USD/JPY's recovery extends further to as high as 77.68 so far before
retreating mildly. With 76.46 minor support intact, intraday bias is
mildly on the upside for further rise. But after all, we'll stay
bearish as long as 80.23 and expect more downside ahead. Below 76.46
minor support will flip bias back to the downside. 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.
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