The greenback was confined in relative narrow range after
yesterday's volatile price actions in thin trading conditions in Asia.
After falling sharply against European counterparts yesterday, dollar
recovered against most major currencies. USD/JPY edged higher on news of
a meeting between senior finance ministry and Bank of Japan officials
today and they exchanged views on currency rates. Japanese officials
also expressed their concerns over the negative impact of yen strength
to the country's export sector. Vice Finance Minister for International
Affairs Takehiko Nakao and Bank of Japan Executive Director Hiroshi
Nakaso held a meeting at the BOJ headquarters, giving a sign to the
market that Japanese officials are ready to take further action to curb
yen's rise. The official made comment after the meeting that both BOJ
and MOF will work as a team to deal with the yen's strength. Similar
meeting between the BOJ officials and Senior member of MOF was held
before also in August 2010 discussing the same topic, the two
organizations gave a joint statement warning markets against excessive
yen volatility last time but no plan for such statement yet according to
BOJ spokesman. With the USD/JPY trading comfortably below 77.00 for
more than a week, more and more traders are expecting the currency pair
to hit record low of 76.25 soon (later this week or next week the
latest), some dealers suggest it needs to clear stops and option
barriers below 76.25 first before hitting decent size bids below 76.00,
then the greenback would have the power to stage a real rebound back to
77.00 and even 78.00 level. Market liquidity may improve next week when
most Japanese investors and traders return from their summer holidays
(O-Bon holidays), however, one should note that exporters may also
resume their selling of dollar for month end transactions. At the
moment, it looks like orders in EUR/JPY are working the round with
offers in good size at 111.00-10 (stops above) whilst bids are also
reported protecting stops below 110.00.
Although the single currency rose quite sharply yesterday from 1.4325
to a 3-week high of 1.4517, traders found it very difficult to push
euro further north with recent releases of soft growth and production
data in eurozone. Comments from ECB's council member Ewald Nowotny also
seen pressured the single currency as he expressed in an interview with
newspaper on his fears of a phase of low growth rates and low inflation
in the eurozone, He said growth has slowed more than expected in the
region with the debt problems, he also indicated that it is too early to
make decision about implementing eurozone bond. In order to solve the
regional debt problems, he would prefer to prioritize the implementation
of policies agreed earlier in July meeting. EUR/USD gave back over half
of yesterday's advance partly due to risk-off trades as most Asian
equities are in red zone, bids at 1.4390-00 were filled. Option maturity
today include 1.4250, 1.4225 and 1.4500 all NY cut.
The British pound traded with a relatively firmer footing as dealers
await the release of UK July retail sales data, as indicated in our
previous update that some traders are betting the number to show
better-than-expected readings due to the boost from Royal Wedding.
The Swiss franc remained locked in familiar range after yesterday's
disappointment from SNB, however, USD/CHF and EUR/CHF just rebounded in
European morning on talk of SNB injecting liquidity into the market, in
line with what the central bank said it would do yesterday. USD/CHF
quickly bounced from 0.7891 to 0.7991 and EUR/CHF also jumped sharply
from 1.1370 to 1.1515. At the moment, there are also rumors of rate
checking by SNB.
On the data front, in addition to the indicated UK retail sales data,
focus will be on the release of U.S. existing home sales figure
(14:00GMT) and more importantly the July CPI data at 12:30GMT with
market consensus centered at 0.2% m/m and 3.3% y/y, core CPI at 0.2% m/m
and 1.7% y/y.
USD/JPY Daily Outlook
Daily Pivots: (S1) 76.37; (P) 76.60; (R1) 76.80;
USD/JPY is still staying in tight range for the moment and intraday
bias remains neutral. No change in the outlook that further decline is
expected with 77.32 minor resistance intact. Break of 76.28 will
confirm resumption of the whole decline from 85.51 and should target
100% projection of 81.46 to 76.28 from 80.23 at 75.05 next. On the
upside, above 77.32 minor resistance will bring stronger recovery. But
we'll stay cautiously bearish as long as 80.23 resistance holds.
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 revive the case that USD/JPY's down trend has finished.
Otherwise, we'll stay cautiously bearish in the pair.
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