Thursday, 16 Sep 2010

Euro Rises and Yen Continues to Weaken

Both the euro and the yen have been the big movers during the morning hours of today's European trading session. The Japanese Ministry of Finance has pledged its intention to intervene in the forex market again and has received the verbal backing from the Japanese Prime Minister to defend the Japanese currency.

At lunchtime during the London trading hours, the EUR/USD was trading up sharply at 1.3100, after opening the day at 1.2986. The USD/JPY was trading higher 85.65, from its opening price of 85.26.

The Bank of Japan is reported to have injected into the currency markets over 1 trillion yen. Currency analysts expected Japan to limit the injection vehicle to only 700 billion yen.

Prime Minister Naoto Kan, who recently won an election to maintain his status as head of his political party said he would take decisive steps to fend off deflation or worsening job conditions in Japan.

Wednesday's intervention in the forex market by the Japanese Ministry of Finance was the first intervention for Japan since 2004's bid to weaken the yen. A strong yen will damage Japan's economic recovery which depends on its large exporting industry to fuel growth. A strong yen makes Japanese exports less competitive.

The euro continues its bullish run that began in the beginning of this week. A better than expected European trade balance may have added to traders' outlook on the euro, spurring further buying of the currency.

Traders are anticipating an active New York trading session with the upcoming Swiss interest rate decision due at 12:00 GMT. The Swiss National Bank is expected to hold rates steady.

The economic calendar is busy today with US inflation numbers, weekly unemployment data, and the Philly Fed Manufacturing Index. Strong numbers could carry the risk-on trading into the New York hours with the EUR/USD targeting the 1.3225 level. The USD/JPY could continue to rise to the resistance level at 86.30.