Tuesday, July 19, 2011

MOF Would Probably Intervene to Stop Disorderly JPY Gains

Previous session overview
The euro held onto small gains against the dollar in Asia Tuesday ahead of the European Union's emergency debt crisis summit Thursday, while intervention fears underpinned the dollar against the yen. 

Persistent jitters over European sovereign debt concerns and dovish remarks by Australian's central bank on its rate outlook have kept market sentiment risk averse, while caution ahead of Thursday's euro zone meeting means traders are wary of building up fresh short positions on the single currency. 

At 0450 GMT, the euro was at USD1.4137 from USD1.4114 late Monday in New York. The dollar was at JPY79.15 from JPY79.03, while the euro was at JPY111.79 from JPY111.57. The U.K. pound was at USD1.6082 from USD1.6062. The dollar was at CHF0.8185 from CHF0.8180.

Meanwhile, the dollar was supported against the yen by speculation over possible market intervention, after Japanese Finance Minister Yoshihiko Noda reiterated that recent yen moves are "one-sided."

The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 75.338 from 75.357.

The Pound was a noted underperformer with EURGBP rebounding and Cable dropping below the USD1.6100 level after the recent rally ran out of steam.

The Australian dollar inched higher Tuesday as renewed buying interest in Asian trading somewhat offset dovish minutes from Australia's central bank. At 0600 GMT, the Australian dollar was at USD1.0615, up from USD1.0604 late Monday. Against the Japanese yen, the Australian dollar was at JPY83.875, up from JPY83.77.
Market expectation
The currency market is also likely to keep a close eye on yields on Spain and Italy's 10-year government debt, said analysts.

The EURUSD retains small gains but may face renewed downward pressure unless there are surprises from the EU's emergency debt crisis summit Thursday. The EURUSD is lower at USD1.4089 from an earlier high of USD1.4136. The pair may fall in USD1.4010-USD1.4020 band later in the global day, the dealers say.

The USDJPY is unlikely to fall below the all-time low of JPY76.25, marked on March 17 after the disasters, say dealers. Still, there is a risk that radical risk aversion triggered by European and U.S. debt concerns could lead to an unexpectedly big decline in the USDJPY. The FX margin aggregate net short JPY position is extremely large, so abrupt risk aversion could trigger unwanted liquidations of these short JPY positions and spur sharp JPY gains. If the pair tests the all-time low, the BOJ would have to ease policy further, and the MOF would probably intervene to stop disorderly JPY gains, dealers added.

European stocks are expected to edge higher at the open Tuesday with investors seeking bargains after recent losses, but any early gains could well be short lived with investors still concerned about political prevarication over U.S. and European sovereign debt.