Tuesday, August 2, 2011

Speculation that Japan could conduct Yen Selling Intervention

Previous session overview

Speculation that Japan could conduct yen-selling intervention sent the Japanese currency down against its counterparts in Asia Tuesday, although many dealers said any government action would likely have only a short-term impact, as overseas factors continue to help the safe-haven unit. 

Of likely concern to the Japanese authorities, the yen failed to retreat much against the dollar, despite the U.S. House passing a debt ceiling increase during morning trade in Asia. 

Japanese Finance Minister Yoshihiko Noda said he would "like to watch market movements closely today, particularly after the progress in the U.S. debt issue," adding that the government is talking with the Bank of Japan and other countries about the yen's strength. 

At 0450 GMT, the dollar was at JPY77.46 from JPY77.18 late Monday in New York, but down from an earlier high of JPY77.85. The euro was at JPY110.41, from JPY110.01 in New York. The common currency was at USD1.4254 from USD1.4250. The ICE Dollar Index was at 74.321 from 74.329.

The Pound rallied in Asia before falling back to opening levels and finding support under USD1.6300. EURGBP fell as the Pound outperformed relative to the troubled Euro. GBPJPY was extremely volatile falling from JPY128 to JPY124 as the USDJPY gyrated wildly. UK Factory PMI slipped into contractionary levels for the first time in 2 years.

The Australian dollar slid broadly Tuesday as the country's central bank kept interest rates steady and failed to meet market expectations that the bank would signal an increasing likelihood of rate hikes down the road. At 0600 GMT, the Australian dollar was at USD1.0925, down from USD1.1050 late Monday and off from a 30-year high of USD1.1080 last week. Against the Japanese yen, the Australian dollar was at JPY84.57, down from JPY84.89.

Market expectation

Analysts said the temporary alleviation of fears about the U.S.'s fiscal health gave investors the opportunity to look at Europe with fresh eyes. The euro's price action suggested that investors were becoming more concerned that European Union leaders had fallen short in their efforts at a July summit to increase certainty about Greece's sovereign debt woes.

Dealers say there are growing concerns over global economic fundamentals after weak U.S. ISM data Monday, followed by weak U.S. GDP data Friday. The EURUSD is lower at USD1.4230 from an earlier high of USD1.4283. The pair may fall to USD1.4100 later in the global day.

The USDJPY is lower at the European market open as players resume testing lows in the pair as Japanese authorities have not been suspected of intervening during Asian trading, say dealers. The USDJPY is at JPY77.29, after dipping to JPY77.16, from JPY77.43 before the latest drop. Speculators are likely to try to trigger a chunk of stops-loss selling orders below JPY77.00. If those are triggered, the pair's next downside target is the record low of JPY76.25.

European stocks are expected to open flat to marginally lower Tuesday, as concerns over the global growth outlook and the possibility of a credit-rating downgrade to the world's largest economy overshadow what looks to be a done deal on the U.S. debt plan.