Wednesday, July 13, 2011

Market Morning Overview - 13 July 2011

Previous session overview
The dollar dropped to a four-month low against the yen in Asia Wednesday, as talks on the U.S. debt ceiling became bumpier, while mounting concerns over contagion of euro-zone debt problems left the Japanese currency as the least unattractive option. 

In thin trade early Wednesday morning in Asia, the dollar fell to JPY78.48, its lowest since March 17. Yet unlike that day, when the greenback's slide to a post-World War II low at JPY76.25 ramped up pressure for intervention-which came the following day-Japan's currency authorities seemed unlikely to wade into the market for now. 

Another reason Japan's finance ministry, which decides the country's currency policy, is unlikely to order up intervention now is that the yen's strength hasn't prompted any sharp sell-off in equities, analysts and traders said.

The view that Japan likely won't intervene for now gave the green light to Japanese importers and other market participants to bargain hunt the greenback after its earlier fall, dealers said. 

At 0450 GMT, the dollar had recovered to JPY79.44, up also from JPY79.25 late Tuesday in New York. 

At 0450 GMT, the euro was at USD1.3988 compared with USD1.3975, and at JPY111.11 compared with JPY110.75. The ICE Dollar Index was at 75.974 from 76.011. 

In an atmosphere of dense risk aversion as Europe's funding and debt crisis throws up new woes on an almost daily basis, the Australian dollar, traditionally a classic risk proxy eked out some gains Wednesday helped by robust Chinese data. That result saw the Australian dollar reverse early-session losses to hit an intraday high of USD1.0648. At 0550 GMT, the Australian dollar was at USD1.0634, up from USD1.0622 late Tuesday. Against the Japanese yen, the Australian dollar was at JPY84.50, down from JPY84.72.
Market expectation
The USDJPY and EURJPY are off earlier lows due to buying by Japanese importers and other market participants, say analysts. After the dollar's drop early this morning, they have been buying it back to take advantage of the lower levels, they say. Strong Chinese economic indicators gave the EURJPY and other JPY crosses further support, they say. But with the euro-zone debt problems looming large, any further recovery in the EUR should be limited.

Dealers cited the breakdown Tuesday in talks between U.S. congressional leaders and President Barack Obama on raising the country's debt ceiling, as an August 2 deadline looms. The U.S. unit could also face further selling later in the day, if Federal Reserve Chairman's Ben Bernanke's testimony before the House Financial Services committee adds to speculation the Fed is growing increasingly dovish given recent weakness in economic indicators, said dealers.
European stock markets are expected to open on a cautious note Wednesday, after Moody's injected fresh worries into the market Tuesday by cutting Ireland's credit rating to junk territory.