US Dollar Falls While Yen Rallies on Japan Policy Shift
Today, the US dollar is showing signs of weakness versus most currencies. Most notably, the yen has recovered, although this is due more to the Japanese finance minister’s request that pension funds invest more in local assets than to any major intervention. The 10-year JGB yield fell for the first time in two weeks, as the Nikkei jumped 1.2%. That reduction of 13 basis points is the largest one-day decline so far this year. Before attracting new offers, the dollar fell to JPY161.30 from its previous hanging point around JPY162.40. Notably, after three years without this benchmark, the PBOC finally set the dollar’s reference rate below CNY6.80. Important members of the newly formed task forces were appointed by Federal Reserve Chair Warsh. It seems like they have a lot of credibility and respect, as well as different experiences and political opinions. It seems like a good idea to check in on basic ideas every so then. Moreover, reports indicate that the US and Iran are currently engaged in technical conversations. August WTI, which peaked on Wednesday at slightly more than $76, has since dipped below $71 and is now hovering around $72 ahead of the start of the North American session.
Throughout the week, the Euro has remained within the same $1.1375-$1.1475 band that it traded in on July 2. Before turning around in Europe and falling to new session lows around $1.1425, the euro rose to $1.1460, above the 20-day moving average (~$1.1440) today. Ever since the FOMC’s hawkish stance was announced on the evening of June 17, no position has been established above it. If the market closes below yesterday’s low—which was around 1.1415—the technical picture will be worse. However, options worth 2.6 billion euros, ranging from $1.1400 to $1.1405, are set to expire today. Japanese investors continued to sell off their overseas stocks and bonds last week, according to the Ministry of Finance’s weekly data, and the record current account surplus was announced earlier in the week, but the yen still failed to gain traction. But today, the yen has recovered its power thanks to a strong PPI and an appeal from Finance Minister Katayama for national pension funds to increase their investments in domestic assets. The selling price of the dollar was JPY161.30, just above the weekly low set on Monday, which was closer to JPY161.20.
As of this morning’s European trading, the dollar has returned to around JPY161.85. With JPY162 serving as the first hurdle, the intraday momentum indicators point to the possibility of additional USD appreciation. After rising for the ninth time in eleven sessions yesterday, sterling’s impressive trading performance shows no signs of abating. There is no evidence of overextension in the daily momentum indicators. The $1.3460 high from June 15 is the next objective; this level also represents the 61.8% retracement of sterling’s decline from the ~$1.3660 high on May Day. It stalled after reaching little over 1.3450 during the Asia Pacific session. In Europe, it pulled back to around $1.3410. There is support between 1.3380 and 1.3400. Options in that band with a value of 1.37 billion GBP are due to expire today. Yesterday, the Canadian currency rose somewhat, but the gain was lacklustre. Maybe some were scared off by the predictions for today’s labour market data, which won’t be able to top last month’s numbers—a 154k boost to full-time jobs and a 6.6% drop in the unemployment rate from 6.9% on stable participation.
Today, the US dollar broke through the 20-day moving average (~CAD1.4165) for the first time in almost two months. However, it eventually recovered and stayed above the CAD1.4150 support level. Today, it hit a new low of around CAD1.4135 due to follow-through US dollar selling, its lowest level since June 19. But by morning European time, the dollar had rebounded from its low in the Asia-Pacific region and was back around the CAD1.4170 range. This may be the bottom for the US dollar’s comeback, according to the intraday momentum indicators. Yesterday, the Australian dollar traded over $0.6925, staying within a quarter-cent range. Although it hit 0.6970 today, the high for the week was close to 0.6960. It paused and reversed course, retracing to the level of acquisition in Europe, which was over $0.6940. Looking at the intraday momentum indicators, things are looking well.
