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| Equities Move Higher as Yen Continues to Weaken Posted: 30 Mar 2011 05:17 AM PDT
In European trading today traders were moving into higher yielding assets such as equities and the euro while shunning the yen, the traditional safe-haven currency. ADP payrolls data will be released shortly and should dictate the trend for the remainder of the day. The yen continues to weaken in trade versus the dollar and the euro as rate differentials are driving the yen lower. Rising European interest rates have been widely priced in and have fueled gains in the euro. But recent comments by Fed officials have opened the door for the possibility of a normalization of US monetary policy after more than two years of high liquidity. In response traders have been bidding the dollar higher this morning Equities were stronger with the FTSE trading higher by 0.52% while the DAX was up over 1.60%. At lunchtime during the European trading session the USD/JPY was up at 83.07 from 82.97. The EUR/JPY was at 117.11 from an opening day price of 116.92. Morning data releases were positive as the KOF Economic Barometer showed positive sentiment in Switzerland which may be increasing expectations for a rate hike by the SNB Traders sent the Swiss franc higher versus the dollar as the USD/CHF traded lower at 0.9213. British CBI Sales were significantly stronger than expected at 15 on forecasts of a decline of -1. This helped support the pound and the GBP/USD rose from a two month low to trade at 1.6025 from 1.5994. Equities were stronger with the FTSE trading higher by 0.52% while the DAX was up over 1.60%. ADP non-farm payrolls are expected at the opening of New York trading. A report that shows better than expected private payrolls may favor the short term trend of dollar strength and yen weakness. Resistance for the USD/JPY is found at 80.30 followed by 84.00 on an extension. |
| Posted: 30 Mar 2011 03:02 AM PDT
The EUR/JPY is supported by improving fundamentals and positive technicals. Looking first at the euro, recent euro strength can be explained via expectations of rising interest rates. ECB President Jean-Claude Trichet has made no secret of this and on Monday reiterated his commitment to increasing European interest rates. Rising inflation in the euro zone is consistently above the ECB target of 2% and Trichet appears determined not to let inflationary pressures get out of control. Expectations of the ECB raising the interest rate off of its 1.00% low have traders moving into the euro in search of higher yields. The 17-nation currency is not without its faults. In the last meeting of Europe's finance ministers, the group was unable to come to a decisive agreement to support the indebted peripheral nations with the new European Stability Mechanism. Yesterday S&P downgrading Greek sovereign debt as the rating agency expects a higher risk of a debt restructuring. However, the euro was little changed following the news. This sends a signal to traders; as the currency fails to react to negative news; underlying fundamentals have changed and the market is now focused on interest rate differentials Turning to the yen, the Japanese currency is now trading at its weakest point since the G7 intervened in the FX markets. It appears traders have been positioned out of long yen positions by the unilateral intervention. Also improved risk sentiment is helping as traders unwind risk-off trades from the previous two weeks which supports a weaker yen. Looking to the charts, the EUR/JPY appears to be reversing the long term trend. In mid-February the pair broke above the trend line off of the October 2009 high. The daily chart shows the long term moving averages have turned higher. Yesterday the pair broke out about above the previous resistance level on the weekly chart at 116.00. There is a lack of resistance levels on the chart until 119.60. Moving higher, the next resistance is found at 128.00 and 134.40. To the downside, support is found at 112.00 and the pre-intervention low at 106.80.
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