- BOJ jawbones on the yen as pair stabilizes above 76.00
- Merkel - no need for Eurobonds YET
- Nikkei off -1.04% Europe rebounds up 1.1%
- Oil at $82.58/bbl on Libyan news
- Gold up 37 to $1889/oz.
Event Risk on Tap
- USD Chicago Fed Nat Activity Index (JUL) expected at -0.48
- USD/JPY eyes 77.00 after Noda warns that he is ready to move
- AUD/USD rallies above 1.0400 on return of risk
- GBP/USD trades either side of 1.6500
- EUR/USD rallies back to 1.4400 on risk flows
A relatively quiet night of trade in the currency market as dealing opened for the week with European session reversion most of risk aversion flows in early Asia as EUR/USD recaptured the 1.4400 figure after slipping to 1.4350 earlier in the day. Asian equity bourses were lower with Nikkei ending up -1.11% on the day which pressured the euro a bit at the open. The pair was also a bit lower due to comments over the weekend by German Chancellor Angela Merkel who stated that Euro bonds are exactly the "wrong answer" to the current crisis and would merely lead the euro zone to a "debt union" rather than a "stability union".
Yet Ms. Merkel did not rule out the possibility of Eurobonds in the future and may be simply playing for time as Europeans officials attempt to develop the critical financial and political infrastructure for a common funding authority for the region. The EUR/USD remains remarkably well bid despite the ongoing uncertainty in the EZ credit markets and may make a run at the 1.4500 level if risk flows prove supportive during North America session.
However, much of its strength is predicated on the notion that the recent volatility in the capital markets will only have a minor negative impact on real economic activity in the 16 member union. To that end tomorrow's flash PMI readings - which are the freshest gauges of economic activity - could prove critical to the near term direction for the pair. Markets expect the indices to post a small decline from the period prior but to remain above the key 50 boom/bust level. If they do the bulls may breathe a sigh of relief and push the unit higher. However, if the PMI readings surprise to the downside and point to possible recession in the region the pair could come under sustained selling pressure as traders begin to abandon risk trade.
Meanwhile in Japan USD/JPY firmed after Japanese Finance Minister Yoshihiko Noda warned that government may once again step into the currency market to weaken the yen after the unit hit a record high against the greenback in Friday's session. Speaking to reporters Mr. Noda stated, "I have become more concerned about the worsening of the yen's one-sided movements.I will take bold actions if necessary and won't rule out any possible options."
USD/JPY hit an all time low of 75.95 in Friday's dealing on concerns over slowdown in global growth and the prospect of further unwind of the risk asset trades many of which are financed with yen. However, the pair has stabilized ahead of the critical 75.00 level as traders were fearful of BOJ intervention.
Today's comments by Mr. Noda are a clear sign of the frustration amongst Japanese fiscal officials as they face the conundrum of an ever strengthening currency amidst rapidly deteriorating economic conditions. Japan's export driven economy is trapped in horrible cycle as it's currency strengthens at the worst possible time just as global economic demand is beginning to slow. This leaves Japanese officials with no choice but to intervene in the market even if their policy actions prove to be futile over the long run. For the time being the goal of Japanese authorities may be to slow the rate of appreciation rather than reverse the overall trend. If the unit continues to drift towards the 75.00 level, they are likely to make their stand.
|USD||12:30||8:30||Chicago Fed Nat Activity Index (JUL)||-0.48||-0.46|