Monday, August 22, 2011

Market Morning Overview - August 22, 2011

Previous session overview
The yen weakened against the dollar, euro and other counterparts in Tokyo Monday as speculation mounted that the Japanese authorities may soon conduct another round of currency market intervention. 

Japan's finance minister, who controls decisions on intervention, stepped up his rhetoric against the yen's strength, saying recent "one-sided yen moves" have been accelerating. "We will not rule out any possible measure and will take decisive steps if needed," Finance Minister Yoshihiko Noda said Monday morning. Later, he reiterated his view that the currency's strength doesn't match Japan's economic fundamentals. 

A sharp drop in the yen against its peers around 0200 GMT caught the market's attention and underscored recent volatility. Dealers said big overseas banks were behind the yen-selling rather than the Japanese government. 

At 0450 GMT, the dollar was at JPY76.70, up from JPY76.54 late Friday in New York. The euro was at JPY110.24 from JPY110.20. 

The common currency traded at USD1.4366 compared with USD1.4396. The ICE Dollar Index, which measures the greenback against a basket of other currencies including the euro and yen, was at 74.069 from 73.990. 

The Swiss franc continues to demonstrate strength against the euro and U.S. dollar as Switzerland's economy struggles to cope with its safe-haven currency.

The Australian dollar was slightly higher Monday despite signs of growing risk aversion in international markets with the gold price touching a fresh record high and shares across Asia weaker. At 0645 GMT, the Australian dollar was at USD1.0381, up from USD1.0338 late Friday. Against the Japanese yen, the Australian dollar was at JPY79.63, up from JPY79.115. The gold price spiked to a high of USD1881.73 in Asia.
Market expectation
Market participants remain on the lookout for any government action, after the dollar marked a fresh post World War II-low at JPY75.94 Friday. The yen's prolonged strength threatens Japan's export-driven economy, and pressure is mounting on the government to act. 

Short-term investors have recently accumulated large bets on the Japanese currency amid continued turbulence in global financial markets. Hedge funds and other non-commercial investors had 47,348 contracts betting on the yen against the dollar in the week to Aug. 16, up from 42,149 the week earlier. 

While such investors adjusted those bets slightly Monday, yen-positive, dollar-negative factors would likely persist, dealers and analysts said.

European stocks are expected to start down as global economic growth fears continue to hurt sentiment, while the focus Monday is likely to be on the price of oil as Libyan rebels reach the capital city of Tripoli and take a step closer to ousting Col. Moammar Gadhafi from power.