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Thursday, 16 Sep 2010
Rare Japanese Intervention in Yen Trading Manages to Halt Yen's Bullish Trend
The most significant economic event yesterday was beyond any doubt Japan's confirmation of a unilateral intervention in yen trading in order to put a stop to the soaring currency. The consequences were seen immediately and the yen saw its biggest daily loss in 22 months. Unusual trading is expected today as well.
USD - Dollar Sees Mixed Results Vs. The Majors
The U.S. dollar saw mixed results against most of the major currencies during yesterday's session. The dollar fell about 80 pips vs. the British pound, causing the GBP/USD pair to reach the 1.5650 level. The dollar also saw an irregular 250 pips gain against the Japanese yen, following the recent 15-year low the USD/JPY pair hit earlier this week. The dollar did not show a clear trend against the euro.
The dollar was boosted against the yen yesterday following Japan's decision to actively intervene in devaluing the national currency. It was only a couple of days ago the yen reached a 15-year high against the dollar. This in turn caused the bank of Japan to unexpectedly buy dollars in order to halt the soaring yen. As a result the JPY sharply fell against all the major currencies, including the greenback.
Against the rest of the major currencies the dollar failed to see similar results following disappointing U.S. economic releases. The Empire State Manufacturing Index showed that manufacturing in the New York region expanded at a slower pace than forecast in September. In addition, the Industrial Production report showed that total value of output produced by manufacturers rose by 0.2% in August. Analysts had originally predicted the figure to come in at 0.3%. As a result, the dollar dropped slightly against the euro and pound.
As for today, a batch of data is expected from the U.S. economy. The most significant releases are likely to be the Producer Price Index, the weekly Unemployment Claims and the Philadelphia Manufacturing Index. Each one of these publications is likely to have a large impact on USD trading.
EUR - Euro Slips Against the Pound; Soars Vs. The Yen
The euro saw a volatile session during trading yesterday. The currency mainly saw ups and downs vs. the U.S. dollar, without marking a clear direction. Against the British pound the euro fell about 100 pips. On the other hand, it gained over 350 pips against the Japanese yen.
The euro fell against the pound yesterday following the European Consumer Price Index figure for August. The report showed that the euro-zone's annual inflation rate eased to 1.6% from 1.7% in July, indicating that the European Central Bank has enough room to maintain its loose monetary policy, and to keep interest rates at a record low of 1.00%. Investors interpreted this as an opportunity to open short positions against the euro, especially against high yielding assets, such as the pound.
Nevertheless, the euro saw an extraordinary bullish move against the yen. The yen fell against all the major currencies due to the Japanese government's intervention in JPY trading.
Looking ahead to today, the most significant economic release from the euro-zone seems to be the European Trade Balance figure. Trade balance measures the difference in value between imported and exported goods and services over the previous month. A positive figure might support the euro.
JPY - Yen Free-falls Following BoJ Intervention in Yen Trading
The yen tumbled against all the major currencies yesterday. It slipped about 250 pips against the dollar, causing the USD/JPY pair to rise from a 15-year low to the 85.50 level. The yen also lost about 350 pips against the euro and about 500 pips against the British pound.
The JPY saw its largest daily loss in 22 months after Japan's Finance Minister Yoshihiko Noda said the Bank of Japan actively devalued the currency. This was the first time since 2004 that the Japanese leadership decided to intervene in the forex market. The decision came after the yen saw a 15-year high against the dollar. The fear was that the strong yen would damage Japan's export industry.
As for today, the yen is likely to remain the most volatile currency of all the majors. Traders are advised to look for notifications regarding the BoJ's actions in the market, and take under consideration that if the Japanese leadership will continue to intervene, the yen may see another bearish session.
OIL - Crude Oil Falls For the 3rd Day to $74.70 a Barrel
Crude oil fell to a session low of $74.70 a barrel yesterday. After starting out at around $76.50 a barrel, oil saw a sharp drop before correcting some of its losses to end the day around $75.50 a barrel.
Crude fell yesterday after U.S. regulators agreed to a Friday Restart of Enbridge's biggest pipeline from Canada, restoring crude supplies to Midwest refineries. In addition, reports showed that demand for gasoline in the U.S, the world's largest oil consumer, fell by 2.6% lately. The combination of bigger supplies and lower demand typically lead to a drop in prices.
Looking ahead to today, traders are advised to follow the leading economic publications, especially from the U.S. and the euro-zone, as they tend to have a large impact on crude oil trading. Traders should keep in mind that positive results are likely to support crude oil prices.
The bullish trend is losing its steam and the pair seems to be consolidating around the 1.2990 level. There is a bearish cross forming on the 4-hour Slow Stochastic, indicating a bearish correction might take place in the nearest future. When the downward breach occurs, going short with tight stops appears to be the preferable strategy
The daily chart is showing mixed signals with its RSI fluctuating in neutral territory. However, the 4-hour chart's RSI is already floating in the over-sold territory suggesting that the recent downward trend is losing steam and a bullish correction is impending. Going long with tight stops might be the right strategy today.
The volatility this pair has seen recently has created a number of contradictory signals. The hourly chart shows a bullish cross on the Slow Stochastic, indicating an upward movement may be coming. Contrary to this is the bearish cross on the 4-hour chart, signaling an impending upward movement. Waiting for a clear signal might be wise today.
The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.
The Wild Card
This pair has been trading very flat these past few weeks, but has now begun to show signs of life. The MACD on the hourly and 4-hour chart shows clear bullish crosses, signaling an impending bullish move. The daily chart also has a bullish cross on the Slow Stochastic, which supports this notion. Forex traders can join this upcoming trend by entering early buy positions and riding the upcoming spike for profits this week.
|23:50||JPY||M2 Money Stock||y/y||4.4%||4.4%||-|
|00:00||JPY||Monetary Policy Statement||*||*||*|
|00:00||JPY||BoJ Press Conference||*||*||*|
|00:00||GBP||10-y Bond Auction||2.73|1.8||*||-|
|00:01||GBP||BRC Retail Sales Monitor||y/y||3.9%||*||-|
|00:30||AUD||NAB Business Confidence||8||*||-|
|06:00||JPY||Prelim Machine Tool Orders||y/y||40.3%||*||-|
|07:00||EUR||German Trade Balance||18.5B||19.3B||-|
|10:00||GBP||Inflation Report Hearings||*||*||*|
|15:00||GBP||NIESR GDP Estimate||0.8%||*||-|
|23:30||AUD||Westpac Consumer Sentiment||-3.0%||*||-|