Currency markets took center stage to start the week as month-long intervention rhetoric from the Japanese Finance Minister (Azumi) was finally put into action on Monday (after the USD/JPY reached fresh all-time lows below 75.50). The unilateral move to sell the Yen brought the pair to a test of 79.80 before leveling out in the low 79 region, completing a move of more than 400 pips in less than an hour. The range values in the USD/JPY have slowed to a near halt since the summer but the recent injection of volatility was the result of a rumored 1 trillion Yen’s worth of trade flows carried out by the Bank of Japan.
Additional comments suggested that this type of intervention strategy could continue, given that currency values in Japan (according to Azumi) are not reflective of economic fundamentals and that recent moves in foreign exchange have been generally one-sided. Apparently, the Japanese Finance Ministry did ask the central banks of other nations for assistance in reversing Yen strength but at the moment there is no evidence to suggest that these requests were honored. The solo nature of the intervention does put the validity of the latest moves into question, so a significant pullback from today’s highs would not be at all surprising.
Since the trade flows were specifically focused on the USD/JPY, the total result of the intervention was Dollar strength, with Gold and the high yielding currencies also seeing significant declines early in the Asian session. The Euro has pushed through psychological support at 1.40 and the downward move is being aided by the fact that Fitch released a statement over the weekend suggesting that the 50% write-down in Greek debt (which was part of the three-fold agreement at last Wednesday’s meeting) would fall into the “default” category.
While the headlines focused almost entirely on the volatility seen in currency markets macro releases were essentially ignored. Official data did show that Japanese manufacturing PMI managed to regain the expansionary 50 level (after the 49.3 reading seen in August). Second-tier confidence surveys out of the UK, however, were disappointing and did nothing to help the declines seen in the GBP in Monday’s trading.
In US data, personal income showed declines while personal spending was seen unchanged, which is less than encouraging for consumer debt forecasts. The University of Michigan consumer confidence survey rose to 60.9 (from 57.5 the previous month). The lackluster data left US equities relatively unchanged on Friday as the dust settles from the massive bull moves seen on Thursday.
Technicals:
The EUR/USD gapped lower to start the week, with prices testing areas below 1.40 before seeing modest bounces higher. The impulsive move is not encouraging for the pair and if we see a break of resistance turned support at 1.3960, we will expect a fall to at least the 38% retracement seen on the 4H charts, which is also where the 100 and 200 period EMAs are clustered.
The DAX is meeting resistance at its 200 day EMA, which is just short of its daily 61.8% Fib retracement at 6550. Expect prices to drift lower until at least the 100 day EMA at 6120 before considering short term buy entries. Resistance now seen at 6445.
